Those of us who wondered aloud if President George W. Bush was brain-dead when he proposed three successive economic plans based on hefty tax cuts for corporations and investors now have to do some serious backpedaling.
The tax cuts are paying off like no other economic programs in the nation's history.
No, I'm not talking about the creation of 958,000 mostly service-sector jobs over the past six months. Vice President Cheney boasted at Little Rock Monday that the jobs signaled that the Bush tax cuts were finally working. Historically, 958,000 low-wage jobs are a very poor half-year record two and a half years into an economic recovery. Compare it with the 2,894,000 new jobs created during a similar span in the economic recovery of President Clinton's first term, in 1994 (without the benefit of big tax cuts for investors and corporations). All these figures, by the way, are from Bush's Labor Department.
No, the unprecedented payoff from the tax cuts is the tide of cash flowing into the Bush-Cheney campaign from the big investment companies benefiting from the tax cuts. The Washington Post reported that investment houses and the insurance sector had kicked in more than $12 million to the campaign as of last month. That doesn't count the millions flowing into Republican congressional kitties nor does it count the contributions from the direct beneficiaries, those who had their taxes cut dramatically.
A goal of the Bush administration is to eliminate federal taxes on income from investment as opposed to taxes on wages. The Institute for Economic and Tax Policy calculates that the tax cuts of 2001, 2002 and 2003, which lowered marginal tax rates and sharply reduced tax rates on capital gains and dividends, slashed the effective tax rate on investment income to 9.6 percent. Meantime, the effective federal tax rate on wages and salaries is 23.4 percent.
The Bush administration's rationale for the lopsided tax cuts for rich investors was that allowing them to keep more of their gains would stimulate securities trades and thereby create more jobs. Far more jobs have been lost than created since the first round of tax cuts but your guess is as good as Alan Greenspan's whether they have had the slightest effect on the job market.
But there is no doubt they have created a vast reservoir of gratitude. Campaign gifts from the Wall Street brokerages are the easiest measure of that appreciation. Slashing income taxes on capital gains and stock dividends and eliminating taxes on rich estates, which are mostly stocks and bonds, should increase the business at the securities firms.
Bush has a novel way of recognizing big fund-raisers. Those who raise more than $100,000 for his campaign are called Pioneers. Those who corral more than $200,000 are Rangers.
Nine Wall Street securities executives qualified to be Bush Rangers in this election cycle and another five are Pioneers, the Post reported.
One of the Rangers is E. Stanley O'Neal, the tough-talking CEO of Merrill Lynch & Co. He sent letters last June to top executives of Merrill Lynch suggesting that they kick in generously to the Bush-Cheney re-election. In 18 days checks from the executives and their spouses totaled $279,750, reputedly a record for such a short span. Overall, Merrill Lynch people have given $459,050. Morgan Stanley & Co. has beaten that by $50,000.
Wall Street's largesse may be insurance, too, that they get in a second term the rest of what Bush has promised. He wanted to eliminate taxes on capital gains and dividends altogether but had to compromise. He said he would come back for the rest, he hopes with bigger Republican majorities in Congress.
Bush wants to expand the existing tax-free savings accounts, available now only to middle- and lower-income taxpayers, to allow wealthy people, too, to put $7,500 a year in "lifetime savings accounts" managed mostly by Wall Street brokerages, reap capital gains, interest and dividends from them tax-free and take the money out for any reason at any time. It would be a boon to brokerages.
And imagine if they also got all the business of millions of workers when Bush succeeds in taking part of worker and employer contributions out of Social Security and putting it into the stock market.
You may find yourself being philosophical about this little morality tale, of people being properly grateful for the good fortune that a benevolent president bestowed on them.
Aside from whether you think it is either moral or economically justifiable for government to have a tax policy that favors the shrewd use of one's wealth over hard work, there is another question. The president is being rewarded for adding some $260 billion or more to the deficit through 2010, which is the approximate value to the national treasury of the tax cuts for investors and rich estates that he's already passed.
One way or another, the rest of you will have to make that up.