Opinion

Guest columnist

Economy needs government spending

by STEVE SHUKLIAN

In a series of speeches last winter, I argued that the Bush Administration's package of tax cuts then being proposed would favor the wealthy at the expense of the poor, fail to stimulate the economy and would undermine our efforts to build the budget surpluses necessary to fund the nation's long-term budget priorities. While the distributional impact of the tax cuts will not be known for another year or so, two points are very clear. The tax cuts have failed to stimulate economic growth and more than one-half of the short- and long-term budget surpluses have disappeared.

The first point should be self-evident to anyone who reads the news. The economy was headed into a recession well before the tragedy Sept. 11, 2001, despite the tax cuts. Furthermore, in August the Congressional Budget Office had to revise the 2001 budget surplus downward from $275 billion to $153 billion and the 10 year forecast had to be cut from $5.6 trillion to $3.4 trillion. Why? According to the CBO, the chief culprit was the Bush AdministrationÕs tax cut. It drained $74 billion from the 2001 budget surplus and $1.7 trillion from the ten year surplus. Even before Sept. 11, Bush Administration officials admitted they would have to borrow $10-$15 billion from the Social Security System to fund the 2001 budget which ended Sept. 31. The lessons of the Bush experiment should have been clear by late August.

When an economy is heading into a recession, with consumer and business confidence weakening, tax cuts are a totally ineffective way of "jump-starting" the economy. Furthermore, by undermining long-term fiscal discipline, the tax cut only made the outlook for a speedy recovery worse (by keeping long-term interest rates high).

In the wake of the terrorist attacks Sept. 11, nearly all economists agree that the U.S. economy needs a stimulus package that will give the economy a much needed boost that will help those most in need, and will, at the same time, not undermine long-term fiscal discipline and budget priorities. Unfortunately, the stimulus package crafted by the Bush Administration and Congressional Republicans will meet none of these goals. It is nothing more than a repackaging of the same old tax "reforms" Bush and the Republican Party were pushing before Sept. 11.

Quite frankly, as many writers have suggested, Bush and his allies are using the September tragedy to speed up a package of tax cuts that clearly favor wealthy households and large corporations at the expense of low and moderate income families. It is pure "economic opportunism."

The Bush-Republican plan spends several hundred billion dollars to accelerate tax cuts for wealthy household, offer accelerated depreciation allowances to corporations to eliminate the alternative minimum tax for all business, and to give a juicy capital-gains tax cut that would benefit primarily households with incomes more than $250,000 a year. These cuts would all be permanent.

On the other hand, all that is being offered to low-income Americans is a one-time $315.00 check to families that did not get the rebate checks in the first round of tax cuts, and a temporary (13 week) extension of unemployment benefits for workers who lost their jobs only after Sept. 11. In West Virginia, this means that a workers who lost their jobs only after Sept. 11 would get an additional $2500 over 3 months in unemployment benefits.

There is, of course, a catch. West Virginia workers would not be eligible for extended unemployment benefits until the state unemployment rate hits 6.6 percent. And, since only one-third of all workers eligible to receive unemployment benefits actually collect them, relief to unemployment workers would be minuscule.

The Bush stimulus package passed by the house Oct. 24 will only heighten inequalities between rich and poor in the U.S. fatten corporate coffers with unnecessary tax breaks, fail to stimulate economic growth and worst of all, will undermine the long-term budget outlook by wasting our hard-won budget surpluses. Hopefully, wiser heads in the Senate will not let this package get to the President.

What the economy needs now is not a huge package of tax cuts but a huge infusion of government spending on programs will rebuild our public infrastructure, education and health care systems.

We also need supplemental outlays to fund underfunded state unemployment. Workmen's Compensation, public assistance and economic development programs.

It is also vital to provide American workers at the bottom of the income scale some form of payroll tax relief. History shows that increases in government outlays on programs such as these will have a more rapid and powerful impact on output, employment and income than tax cuts.

In order to fund these programs and maintain long-term fiscal balance, we should repeal the more than one trillion dollars in tax breaks that will flow to wealthy families and large corporations over the next ten years, and inject $200 billion to $300 billion in emergency spending for the programs mentioned above over the next two years.

This kind of spending will promote growth with equality, preserve the fiscal discipline necessary to meet our long-term budget priorities and provide a solid economic foundation on which to fight the war against terrorism.

Whether conservatives wish to believe it or not, the country needs big government now more than ever. The private sector has never won a war on recession or a war on terror.

Shuklian is an associate professor of economics. Comments may be sent to parthenon@marshall.edu.