"Everybody for a good while accepted that the surpluses were real," insists Daniels, now the governor of Indiana. When pressed, however, he also concedes that by the time Bush took office, "the economy was already unraveling." Indeed, a wave of layoffs at the end of 2000 prompted Dick Cheney to warn, "We may well be on the front edge of a recession here."
The conflicting forecasts – one of sunshine and surplus, the other of gloom and contraction – should have set off alarm bells in the White House. But instead of rethinking the prudence of its massive giveaway to the rich, the Bush team dreamed up a new rationale for cutting taxes: to provide a needed jolt to the economy. "It's a fair thing to say that the stimulus argument was added in the spring of '01, when it had not been there before," Daniels says.
The stimulus argument was lousy economics. The previous two decades, after all, had demonstrated that "trickle-down" tax cuts don't juice the economy – they create bubbles and balloon deficits. Proponents pointed to Reagan's original tax cut in 1981, claiming it had spurred economic growth. But that is nothing more than "urban legend," Stockman says. The economy "did recover after 1982," he says, "but mainly because the Federal Reserve defeated inflation."
In fact, Stockman insists, Bush's tax cuts for the rich represent a bastardization of Reaganism. "The Republican Party originally said that prosperity comes from the private sector," he says. "But today's Republicans have become Chamber of Commerce Keynesians – using tax policy as a way of stimulating, boosting, prodding the economy." The Party of the Rich, in essence, was offering up a twisted version of New Deal policies that laissez-faire Republicans like Reagan had long opposed.
Spinning the tax giveaways as a stimulus plan did serve one useful function: It helped obscure the true purpose of the Bush tax plan. In an internal memo written just days after the inauguration, O'Neill advised Bush that he had a "great opportunity" for quick action on his tax cuts if he framed the choice for Congress as tax cut vs. recession. "We can get this argument on our ground," O'Neill wrote, "and stop the drumbeat about a tax cut for the rich."
With no patience for the specifics of tax policy, Bush deputized Vice President Dick Cheney to push through his tax cut for the rich. Once a deficit hawk who confessed that he was "not convinced that the Reagan tax cuts worked," Cheney had emerged from his tenure as CEO of Halliburton as a leading advocate for rewarding big corporations and their executives – even as GOP moderates warned that Bush's tax cut would foreclose needed investments in education and infrastructure. "The vice president had no interest in what I had to say," recalls Chafee. "He ran the show right from the beginning, and he suffered no compromise."
As the economy worsened, even the president's Treasury secretary grew concerned about the tax cuts. O'Neill pushed Bush to include a trigger mechanism that would rein in the cuts if the projected surpluses failed to materialize. "The trigger was a good idea – having the foresight that if things turned bad, we wouldn't have to reverse course in a difficult time," O'Neill says now. "But there was never any serious interest in it" from the Bush administration.
To Chafee, the opposition to a trigger mechanism seemed to offer a clue about the real goal of the tax cuts: They were designed not to boost the economy, but to force the kind of spending cuts championed by Grover Norquist and other small-government activists. His suspicion that the starve-the-beast crowd was driving the cuts was confirmed, he says, by a conversation he had while walking the Senate corridors with Trent Lott, then the GOP majority leader.
"What's going on here?" Chafee asked. Why not safeguard the economy by adopting a trigger mechanism?
Lott turned to Chafee. "We're going to strangle the spending," he said. On the stump, Bush hyped the benefits of his plan by emphasizing how much in taxes it would save a single waitress. But the real action was at the top rung of the income ladder. Over 10 years, the bottom fifth of income earners could expect to pocket an extra $744. That waitress might be left with enough cash to change out the clutch on her Corolla. The top one percent, meanwhile, would receive more than $340,000 on average – enough to buy his and hers Bentleys.
To read the new issue of Rolling Stone online, plus the entire RS archive: Click Here
CULTURE Odd Future's 'GTAV' Party
Picks From Around the Web
blog comments powered by Disqus