Bush's Distorted Economics

I found a kindred spirit of President Bush in the most unlikely of places: that hotbed of crunchy-granola liberalism, Seattle. Bush’s alter ego appeared in an Associated Press photo, brandishing a placard that proclaimed, “NO ESPRESSO TAX!” His ire was directed at a 10-cent tax on espresso drinks that would have paid for an early childhood education program. I wondered, for a moment, why someone would get so hung up about a miniscule tax that would have funded such an impeccably good cause. But of course, this was a tax on coffee, a sacred cow in the cradle of Starbucks, and this man, a cafe owner, took advantage of that sentiment to protect his profits. People like him managed to convince the rest of Seattle that this tax was an assault on their culture and to disregard the actual merits of the policy. Which brings me to that fellow in the White House.

A devotion to wealth and corporate profits, under the pretense of ideology, is what guides Bush’s economic policy—not actual economics. His disregard for basic economic principles goes beyond his refusal to admit any connection between his revenue-slashing and soaring deficits. He is so stridently and categorically averse to taxing the wealthy that he even opposes taxes which, in themselves, enhance economic incentives and efficiency. He prefers, instead, to shift the tax burden to other, distortionary taxes.

All economists—even liberal ones—accept the fact that most taxes, including income taxes and payroll taxes, distort incentives to some degree. On this point, we are all Feldstein-ians now. But those taxes are justified to the extent that they provide the revenue needed to invest in public infrastructure and services.

When economists come across a tax that actually improves incentives, however, you can imagine how giddy they get. The most basic economic logic says that the benefits of such taxes are indisputable. But basic economic logic has never been Bush’s strong suit.

This became apparent early in his presidency, when Bush championed the repeal of the estate tax—or as Republicans like to call it, the “death tax.” Never mind that giving people gobs of unearned money is known to dampen their desire to get a job and actually be productive. A tax on death is just wrong, Bush insists—it is almost as offensive as a tax on coffee. And so, countless scions of the upper class were put back on the inheritance dole.

Another easy-to-grasp idea about incentives is that people should not be allowed to consume resources for free. It makes little sense to let polluters impose all sorts of costs on our economy by degrading our air, water, natural resources and public health, and then pass the bill onto taxpayers. In fact, the Superfund program used to levy a fee on the worst polluting companies to clean up the same sites that those companies had egregiously contaminated. This improved market incentives by ensuring that polluters did not get a free ride. But the Republicans in Congress let the fee expire in 1995, and now Bush is refusing to reauthorize it, even as the Superfund teeters on the verge of insolvency. A report issued this month by the General Accounting Office warned that if nothing is done about this, no funds will remain in 2004.

The administration’s response to this crisis? Siphon cash from the federal government’s general fund so that the burden for cleaning up pollution falls on taxpayers. It is enough to bring even beginning economics students to tears.

But perhaps it is unfair to measure Bush by the standard of promoting sensible economic policy, since that is really not his goal. Bush believes in standing up for principles, and when it comes to economic policy, the most important principle is to look after CEOs and the ultra-rich, rather than letting himself be distracted by petty details like, for instance, the economy. By that standard, his leadership has been a remarkable success.

Eoghan W. Stafford ’06, an editorial editor, is a social studies concentrator in Leverett House.