Bush's Touchy-Feely Economics
The man and the program are genuinely moderate in some respects, but they apply good cosmetics to familiar Republican features. Lindsey seems to possess an adaptable intellect himself (a capacity for growth, friends might say). At 18, he was a volunteer for George McGovern on the Bowdoin College campus in the 1972 election but changed churches shortly thereafter. At the Federal Reserve, Governor Lindsey served as liaison to its Consumer Advisory Council and styled himself as that rare conservative economist who supports the Community Reinvestment Act, the federal law prohibiting banks from redlining poor neighborhoods. Meanwhile, he joined bankers and other hard-liners in promoting amendments to weaken the law. When community housing advocates blew his cover and angrily confronted him at an advisory council meeting, Lindsey was so rattled he was in tears, defending his virtue.
When I asked him to justify the regressive nature of Bush's tax proposal, Lindsey sounded like a regular bleeding heart. The single biggest component, he insisted, is helping struggling "single moms" to get over. The Bush reforms, he explained, would remove certain bottlenecks in the tax code that act like "the tollgate to the middle class for self-supporting people who are out of dependency but hardly prosperous." The problem he describes is real--the kind of inequity normally tackled by liberals. As wage-earners advance beyond poverty and lose eligibility for income-support benefits like the earned-income tax credit, they face a very high marginal tax rate on every additional dollar they earn. The Bush plan helps them by doubling the tax credit for children and creating a new, lower tax bracket at 10 percent plus charitable deductions for nonitemized returns. The result, Lindsey estimates, is that the zero-tax threshold would move up to $31,000 for single wage-earners with children, $35,000 for married ones.
The idea is genuinely progressive, but, Lindsey's warm, fuzzy populism notwithstanding, it provides cover for a much larger income transfer in the opposite direction. The helping hand for single moms would deliver about $2.6 billion to families of moderate income (only 1.5 percent of Bush's total package, according to Robert McIntyre of Citizens for Tax Justice). Meanwhile, 60 percent of Bush's tax reductions ($81 billion) would go to some 13 million taxpayers who are already the best off in the land. It sounds like Reagan's old song, with sweeter lyrics.
The other central element in Bush's economic agenda--reforming Social Security with private investment accounts--involves a similar sleight of hand. While the rhetoric suggests that Bush's scheme will "solve" the financial shortfall supposedly looming in the future, Lindsey candidly conceded that that's not the case. Futhermore, while young people seem more attracted to Bush's plan than skeptical elders, it is actually the younger generation of new workers who are destined to lose most, because of the cost of diverting Social Security revenues into the new individual stock accounts while still paying benefits to retirees. Lindsey also does not deny this either, though it is a central point of the critics defending the system.
"At some point," he explained, "a transfer from general revenues will be needed to help with the transition's negative cash flow.... Bush has said it several times, and I've said at least 200 times that we are going to have to have that transfer from general tax revenue." In other words, Lindsey assumes that sometime around 2040 the government will have to borrow the money to keep everyone whole. Otherwise, it will have to raise taxes or cut Social Security benefits deeply, or both--just as Social Security defenders warn. In fact, the liberals have been saying all along that if there is a future shortfall--if--the government can solve it in just this manner. It's an awkward admission for Republicans because it contradicts the doom scenario promoted by conservatives.
If a straightforward solution is so obvious, why doesn't George Bush make a clear, firm promise right now that his reform plan will not require cutting anyone's benefits or raising taxes? "That's a political question that has to be decided in 2040," Lindsey replied lamely. Nevertheless, couldn't Bush still make the promise this year? "We really want to get this done next year," he explained. "If Bush ties himself to too many promises, it can't get done. That's why it sounds like we're hedging and not giving all the details. The more wiggle room you have, the better chance you have of getting something done."
A few days after the interview, Lindsey appeared on the Op-Ed page of the Wall Street Journal blasting Al Gore's "risky Social Security scheme" for the very same eventual shortfall that he had just admitted was inescapable under Bush's plan. This is what you might call "wiggle-room economics."