Cut The Fatheads

You can be sure the economy is in trouble when Congress and Bush can agree on something to do. Cut taxes:

Democrats and Republicans on Capitol Hill are also suggesting that they might be able to put aside longstanding partisan differences and work on a stimulus measure, lawmakers and aides said Friday.

In a fresh sign of the possibility of an agreement on a roughly $100 billion package of tax cuts and spending to spur the economy, Nancy Pelosi of California, the speaker of the House, and Senator Harry Reid of Nevada, the majority leader, wrote to President Bush on Friday saying, “We want to work with you.”

That little mash note is interesting, since one could easily make the case for ignoring the economy and letting it fester while Bush twists in the wind. Naturally, you'd want to do just enough to duck accusations of doing nothing.

Democrats might be feeling a little heat from their base, however, with all the kowtowing and rubber stamping they did in 2007. I've been of the mind that Pelosi and Reid were figuring the first year was about setting up the second year of the 110th Congress. Sadly, there at about 800 Americans in Iraq who had to die as part of this strategy.

Some Democrats say they could support tax relief focused on lower-income people and, perhaps, even tax cuts for corporations, if the White House and the Republican Congressional leadership accept some spending increases like extended unemployment benefits or aid to states to help them avert spending cuts.

The unfortunate truth is, Bush's first three tax cuts...2001, 2002, and 2003...ultimately did not benefit the economy in any substantive way, as it was really the sub-prime mortgage business and the ripple effect low-cost mortgages had across the economy.

People spent because they borrowed. This was not current income, not taxable income, and yes, the tax cuts may have generated some tax revenues because the wealthiest among us started shedding some long-term assets because of the the more favorable tax treatment, but it wasn't in line with what was supposedly the "booming economy" that resulted.

Indeed, tax revenues under Bush declined for every year until 2006 when compared to Clinton's last budget. And 2006 only went up because "a big increase in individual taxes on stock market profits and executive bonuses."

Like I said.

Will a tax cut help this time? Probably not. But the key element of this plan is increased government spending: extending unemployment benefits now, before the recession hits, is a sure-fire way of lessening the impact on people and is actually helping to close the barn door before the horse can get out. If it takes a tax cut to get that implemented until a real President comes along, so be it.

I feel both Congress and the President are severely underestimating the nature of this recession (you read that right: our bonds are in danger of losing "government-issue" status!)...I'm pretty sure it will be a depression, as I've said here before...and if I was running for President, I would address this issue in greater depth. Suffice it to say that nature is about to hand us lemons, and I'd have a lemonade stand set up already. We are presented with an opportunity the way FDR was: to do good for a lot of people and help this country improve, at the same moment.

But I digress.

I hope the Democrats are at least listening to Ronald Reagan's old "Trust, but verify" shibboleth:

Democrats said the White House would have to agree not to try to attach favorite measures like repealing the estate tax or making permanent Mr. Bush’s 2001 and 2003 cuts, just as Democrats would have to refrain from attaching extraneous spending.

“It would make sense for the president to do something in a bipartisan way,” said Representative Charles B. Rangel, Democrat of New York and chairman of the Ways and Means Committee. “But I’m scared to death to even talk about tax rebates because of what that might open up.”

A senior Republican aide said: “Republicans will have to talk about making the tax cuts permanent and all that kind of stuff. Democrats are going to want things on their long-term agenda. But if you figure those cancel each other out, there’s probably a playing field where everyone can agree.”

Somehow, I see a fillibuster in our future. And that would be the greatest tragedy of all.

UPDATE

Apparently, I'm not alone in my belief:

The measures now being debated in Washington and on the campaign trail — tax rebates, added help for the unemployed and those facing sharply higher heating bills and, most immediately, a move by the Federal Reserve to further cut interest rates — could certainly moderate the severity of a downturn. Democrats and the Bush administration are considering a package of such measures that could reach $100 billion.

But the forces menacing the economy, like the unraveling of the real estate market and high oil prices, are too entrenched to be swiftly dispatched by government largess or cheaper credit, some economists say.