Mariner
Active Member
This is my first post on this forum. I'm a certified Cambridge liberal. Among other things, that means I'm empathetic, so I care what you think. I'm wondering if some of you would take the trouble to explain to me how Bush policy works. My understanding so far is that Bush's own 2001, 2002, and 2003 projections for economic and job performance have turned out woefully untrue. As a reasonable summary of my concerns, here's a New York Times piece from a couple of days ago:
ECONOMIC VIEW
Taxes and Consequences: The Second Term Begins
By DANIEL ALTMAN
Published: November 7, 2004
RESIDENT BUSH began his first term with projections for $5.6 trillion in budget surpluses. Though he will start his second term facing at least $2.3 trillion in deficits, according to the Congressional Budget Office, his tax-cutting ambitions are even greater. Here are some of the initiatives that he's likely to push, and the unanswered questions that go with them.
Privatization of Social Security President Bush said he wants to give workers an opportunity to divert part of their payroll taxes to individual investment accounts, in the hope that the financial markets would pay higher returns than the existing Social Security system. That money would otherwise have gone to pay benefits for current retirees, however. How would the administration close the gap? Also, who would choose where workers could put their money? Would they have been able to invest in Enron? What about investing abroad? And finally, what would happen if financial markets crashed? In Chile, whose private pension system has been cited as a model by President Bush, some retirees saw their benefits drop by 7 percent in 2001. Could that happen here?
Simplification of the income tax It is not completely clear what the president means by this oft-heard campaign promise. Simplification could take several forms, from closing loopholes and streamlining rates (as in the 1986 restructuring), to a complete overhaul resulting in a flat tax. So, which is it?
Making the 2001, 2002 and 2003 tax cuts permanent The president has repeatedly voiced his determination to achieve this goal, but the medium-term cost could be huge. According to the Congressional Budget Office, making the tax cuts permanent would increase the projected federal debt by a third, or about $2.2 trillion, by 2014. Without any indication that the budget gap will eventually close, interest rates could rise as investors here and abroad become leery. Is this change worth the risk?
Tax-free saving accounts The Bush administration proposed an enormous expansion of saving accounts similar to Roth IRA's, where after-tax income funneled into a special portfolio would generate tax-free returns. Individuals would be able to salt away up to $15,000 a year, under the initial proposal. Most families, assuming they opened accounts for their children, would be able to shelter their entire portfolios from taxes within several years. Financial assets generated about 12 percent of individuals' taxable income in 2002. Could the government afford to forgo the resulting revenue? If there are projected benefits for the economy, how big are they?
Abolishing the tax on dividends The White House sought to eliminate this form of "double taxation" in 2003. In the end, Congress cut tax rates on dividends and capital gains, but didn't abolish the taxes. Economists have not seen a marked improvement in household saving as a result of these changes, however, so the argument to go further will not be straightforward. With big deficits already on the way, how would the administration justify revisiting this tax?
Several of the above, except for the changes to Social Security, are likely to find themselves rolled together in a gargantuan tax overhaul. For a start, a big bill would allow for more horse-trading, which may be needed to secure the 60 senators' votes needed to make permanent changes to the tax code. Such a bill would also make a good capstone for a second-term president who is trying to secure his legacy.
A major tax restructuring would throw up some more unanswered questions, though. Virtually all of the proposals above would increase inequality in incomes. Greater inequality can harm the economy, as poor but talented people find it difficult to develop their potentials and follow through on their creative ideas. That could shrink the pool of skilled labor available to run the nation's cutting-edge manufacturers and service providers.
The administration has not showed much eagerness to deal with these issues. "We can't let the perfect be the enemy of the good," said Peter R. Fisher, then the Under Secretary of the Treasury for Domestic Finance, in an interview in January 2003. By trying to rebalance the tax system to reduce inequality, he added, "you kind of invite a level of complexity back at you that you don't necessarily want."
Perhaps more important, a few of these proposals would tend to shrink the tax base. Should taxes on income from financial assets fall or disappear, the federal government would have to make up the shortfall somewhere. So far, there's little sign in Washington of an inclination to cut spending. In that case, the government would have to borrow much more or raise rates on those Americans who still pay taxes.
Wall Street rallied on Wednesday as the answer to the big question - who would be president for the next four years - came much more quickly than in 2000. But investors and money managers will train their eyes sharper than ever on Washington, looking for the spiraling deficits that would send interest rates sky-high. The president will have to be that much more mindful of the consequences of his actions.
Copyright 2004*The New York Times Company
ECONOMIC VIEW
Taxes and Consequences: The Second Term Begins
By DANIEL ALTMAN
Published: November 7, 2004
RESIDENT BUSH began his first term with projections for $5.6 trillion in budget surpluses. Though he will start his second term facing at least $2.3 trillion in deficits, according to the Congressional Budget Office, his tax-cutting ambitions are even greater. Here are some of the initiatives that he's likely to push, and the unanswered questions that go with them.
Privatization of Social Security President Bush said he wants to give workers an opportunity to divert part of their payroll taxes to individual investment accounts, in the hope that the financial markets would pay higher returns than the existing Social Security system. That money would otherwise have gone to pay benefits for current retirees, however. How would the administration close the gap? Also, who would choose where workers could put their money? Would they have been able to invest in Enron? What about investing abroad? And finally, what would happen if financial markets crashed? In Chile, whose private pension system has been cited as a model by President Bush, some retirees saw their benefits drop by 7 percent in 2001. Could that happen here?
Simplification of the income tax It is not completely clear what the president means by this oft-heard campaign promise. Simplification could take several forms, from closing loopholes and streamlining rates (as in the 1986 restructuring), to a complete overhaul resulting in a flat tax. So, which is it?
Making the 2001, 2002 and 2003 tax cuts permanent The president has repeatedly voiced his determination to achieve this goal, but the medium-term cost could be huge. According to the Congressional Budget Office, making the tax cuts permanent would increase the projected federal debt by a third, or about $2.2 trillion, by 2014. Without any indication that the budget gap will eventually close, interest rates could rise as investors here and abroad become leery. Is this change worth the risk?
Tax-free saving accounts The Bush administration proposed an enormous expansion of saving accounts similar to Roth IRA's, where after-tax income funneled into a special portfolio would generate tax-free returns. Individuals would be able to salt away up to $15,000 a year, under the initial proposal. Most families, assuming they opened accounts for their children, would be able to shelter their entire portfolios from taxes within several years. Financial assets generated about 12 percent of individuals' taxable income in 2002. Could the government afford to forgo the resulting revenue? If there are projected benefits for the economy, how big are they?
Abolishing the tax on dividends The White House sought to eliminate this form of "double taxation" in 2003. In the end, Congress cut tax rates on dividends and capital gains, but didn't abolish the taxes. Economists have not seen a marked improvement in household saving as a result of these changes, however, so the argument to go further will not be straightforward. With big deficits already on the way, how would the administration justify revisiting this tax?
Several of the above, except for the changes to Social Security, are likely to find themselves rolled together in a gargantuan tax overhaul. For a start, a big bill would allow for more horse-trading, which may be needed to secure the 60 senators' votes needed to make permanent changes to the tax code. Such a bill would also make a good capstone for a second-term president who is trying to secure his legacy.
A major tax restructuring would throw up some more unanswered questions, though. Virtually all of the proposals above would increase inequality in incomes. Greater inequality can harm the economy, as poor but talented people find it difficult to develop their potentials and follow through on their creative ideas. That could shrink the pool of skilled labor available to run the nation's cutting-edge manufacturers and service providers.
The administration has not showed much eagerness to deal with these issues. "We can't let the perfect be the enemy of the good," said Peter R. Fisher, then the Under Secretary of the Treasury for Domestic Finance, in an interview in January 2003. By trying to rebalance the tax system to reduce inequality, he added, "you kind of invite a level of complexity back at you that you don't necessarily want."
Perhaps more important, a few of these proposals would tend to shrink the tax base. Should taxes on income from financial assets fall or disappear, the federal government would have to make up the shortfall somewhere. So far, there's little sign in Washington of an inclination to cut spending. In that case, the government would have to borrow much more or raise rates on those Americans who still pay taxes.
Wall Street rallied on Wednesday as the answer to the big question - who would be president for the next four years - came much more quickly than in 2000. But investors and money managers will train their eyes sharper than ever on Washington, looking for the spiraling deficits that would send interest rates sky-high. The president will have to be that much more mindful of the consequences of his actions.
Copyright 2004*The New York Times Company
