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CounterPunch
January
13, 2003
Back with a
Vengeance
The Return of
Voo-Doo Economics
by JASON LEOPOLD
This economic stuff is a bit confusing. President
Bush says his $674 billion stimulus package--which boils down
to huge tax cuts that mainly benefit the rich--will spur economic
growth. In California, the nation's most populous state, Democratic
Governor Gray Davis says he needs to raise taxes to close a staggering
$35 billion deficit in addition to massive cuts to services.
Republicans in Congress support Bush's tax cuts saying it doesn't
just benefit the wealthy, while Republicans in California oppose
Davis' move to increase taxes for the state's wealthiest citizens
by as much as two percent to stimulate the economy in California.
Bush says his plan will create jobs. Davis' plan will likely
result in job cuts. Who's right? Or is this just politics as
usual?
Has anyone seen or heard from Federal
Reserve Chairman Alan Greenspan? Surely, Greenspan, the economy's
psychic, can settle this nonsense by peeking into his crystal
ball and tell us what the future holds under Bush's plan and
throw in his two cents about Davis' package. California is, after
all, the largest contributor to the nation's economy. But it
seems that Greenspan is in a pickle. On the one hand, if he comes
out in support of Bush's tax plan Democrats in the Senate said
they would call for his resignation. On the other hand, if he
opposes it he'll face the wrath of the Bush administration. So
now Greenspan is in hiding (probably tidying up his resume).
It's easy to distrust Bush. Just look
at his track record. But it's even easier to distrust Davis,
who single-handedly turned a $12 billion surplus into a $35 billion
deficit, which is larger than the entire budget of most U.S.
states. Davis said the Internet bust in Silicon Valley and a
downturn in the stock market, both of which contributed heavily
to state coffers, were largely to blame. But since Davis became
governor four years ago, government spending nearly doubled and
his mishandling of the state's energy crisis in 2000 and 2001
cost the state tens of billions of dollars.
The one thing these two diametrically
opposed economic plans have in common, judging by news reports,
is that they are both largely opposed by millions of citizens
and both are mired in politics. Yet President Bush and Governor
Davis had the same message.
"We have one overriding task before
us. We must come together to create new jobs and get our economy
back on track. This task will not be easy. But it is essential
if we're going to continue moving forward," Davis said last
week.
"We've got some obstacles to overcome
And one of those obstacles is to make sure people can find work,
make sure this economy is strong and vibrant and hopeful, that
the future is optimistic for every single citizen," Bush
said last week.
So who's got the better stimulus package?
Robert Reich, the former labor secretary
under President Clinton, explained Bush's economic plan in the
simplest of terms in a column last week: "It's not a plan
for 'growth and jobs'; it's a plan for rewarding the rich when
what the economy needs is more spending by people of modest means.
And it further concentrates wealth and power at a time when wealth
and power are already in fewer and fewer hands."
In California, the exact opposite would
happen under Davis' plan. The governor's announcement of tax
increases and massive cuts to help erase red-ink sets the stage
for a political battle. The tax proposals have support from Democrats,
who want more money to protect programs, while Republicans call
higher taxes damaging to the economy and vow to block any budget
that includes them.
Nearly every state in the nation is facing
a fiscal crises that forces cuts in education, law enforcement
and health care. How does this impact Bush's economic plan, which
provides a paltry $3.6 billion to help out the states?
"It is setting up an unwitting collision
over fiscal policy between Washington and the states that will
help determine the future of the economy and the fortunes of
Main Street," according to the Christian Science Monitor.
By accelerating the income-tax cut and
ending the dividend tax, Bush hopes Americans will spend more
and invest more. The stock market fueled the surpluses of the
1990s, as investors cashed in and paid huge capital-gains taxes.
Now, their disappearance is the single greatest factor in the
state budget crises and could lead to an economic disaster, the
Monitor reported
To many, though, the Bush plan is full
of dangers. For one, they say the centerpiece of the proposal
- the repeal of the dividend tax - could work against states
trying to dig out from deep deficits. Thirty-seven states depend
on federal data to collect roughly $4 billion in dividend taxes.
Without Washington's help, states would have to drop the tax
or come up with a complicated formula of their own., the Monitor
reported.
"Every dollar you give to states
is a dollar that will go into the economy," says Iris Lav
of the Center on Budget Policy and Priorities in Washington,
in an interview with the paper. "It is the most direct stimulus."
Instead, she adds, the states and the federal government continue
to work largely at cross-purposes: "It very likely could
be close to a wash."
Sounds like politics as usual.
Jason Leopold
can be reached at: jasonleopold@hotmail.com
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