Bush administration fire bombs federal income

A colleague called on the telephone, only asking me
minutes before I received this Krugman article via
"Social Credit" (at Topica), if I had seen Krugman's
position in recent days.

This is a pithy, astute article:

["fair use," "teachable moment," "archival," Section 107(a), 1976
Copyright Act and 1998 Digital Millennium Act]

Stating the Obvious

May 27, 2003
By PAUL KRUGMAN 

"The lunatics are now in charge of the asylum." So wrote
the normally staid Financial Times, traditionally the voice
of solid British business opinion, when surveying last
week's tax bill. Indeed, the legislation is doubly absurd:
the gimmicks used to make an $800-billion-plus tax cut
carry an official price tag of only $320 billion are a
joke, yet the cost without the gimmicks is so large that
the nation can't possibly afford it while keeping its other
promises. 

But then maybe that's the point. The Financial Times
suggests that "more extreme Republicans" actually want a
fiscal train wreck: "Proposing to slash federal spending,
particularly on social programs, is a tricky electoral
proposition, but a fiscal crisis offers the tantalizing
prospect of forcing such cuts through the back door." 

Good for The Financial Times. It seems that stating the
obvious has now, finally, become respectable. 

It's no secret that right-wing ideologues want to abolish
programs Americans take for granted. But not long ago, to
suggest that the Bush administration's policies might
actually be driven by those ideologues - that the
administration was deliberately setting the country up for
a fiscal crisis in which popular social programs could be
sharply cut - was to be accused of spouting conspiracy
theories. 

Yet by pushing through another huge tax cut in the face of
record deficits, the administration clearly demonstrates
either that it is completely feckless, or that it actually
wants a fiscal crisis. (Or maybe both.) 

Here's one way to look at the situation: Although you
wouldn't know it from the rhetoric, federal taxes are
already historically low as a share of G.D.P. Once the new
round of cuts takes effect, federal taxes will be lower
than their average during the Eisenhower administration.
How, then, can the government pay for Medicare and Medicaid
- which didn't exist in the 1950's - and Social Security,
which will become far more expensive as the population
ages? (Defense spending has fallen compared with the
economy, but not that much, and it's on the rise again.) 

The answer is that it can't. The government can borrow to
make up the difference as long as investors remain in
denial, unable to believe that the world's only superpower
is turning into a banana republic. But at some point bond
markets will balk - they won't lend money to a government,
even that of the United States, if that government's debt
is growing faster than its revenues and there is no
plausible story about how the budget will eventually come
under control. 

At that point, either taxes will go up again, or programs
that have become fundamental to the American way of life
will be gutted. We can be sure that the right will do
whatever it takes to preserve the Bush tax cuts - right now
the administration is even skimping on homeland security to
save a few dollars here and there. But balancing the books
without tax increases will require deep cuts where the
money is: that is, in Medicaid, Medicare and Social
Security. 

The pain of these benefit cuts will fall on the middle
class and the poor, while the tax cuts overwhelmingly favor
the rich. For example, the tax cut passed last week will
raise the after-tax income of most people by less than 1
percent - not nearly enough to compensate them for the loss
of benefits. But people with incomes over $1 million per
year will, on average, see their after-tax income rise 4.4
percent. 

The Financial Times suggests this is deliberate (and I
agree): "For them," it says of those extreme Republicans,
"undermining the multilateral international order is not
enough; long-held views on income distribution also require
radical revision." 

How can this be happening? Most people, even most liberals,
are complacent. They don't realize how dire the fiscal
outlook really is, and they don't read what the ideologues
write. They imagine that the Bush administration, like the
Reagan administration, will modify our system only at the
edges, that it won't destroy the social safety net built up
over the past 70 years. 

But the people now running America aren't conservatives:
they're radicals who want to do away with the social and
economic system we have, and the fiscal crisis they are
concocting may give them the excuse they need. The
Financial Times, it seems, now understands what's going on,
but when will the public wake up?   


http://www.nytimes.com/2003/05/27/opinion/27KRUG.html?ex=1055033147&ei=1&en=d2fae42a80c1195e


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