ABSTRACT
At the time of writing (2003), a number of noteworthy developments have occurred in the US and British fiscal agenda. Unlike his predecessors of the last 20 years, George W. Bush does not seem to embrace a coherent framework of economic ideas. This is evidenced by the very narrowly focused fiscal policies that have been aimed exclusively on cutting marginal tax rates for America’s wealthiest individual income earners while showing virtually no tendencies for fiscal restraint in discretionary spending (which has been growing at nearly eight percent a year). Back in the year 2000, the federal government estimated that the United States would accrue budget surpluses totaling approximately $5.6 trillion over the next decade.29 With that kind of excess revenue coming into the Treasury, it was not unreasonable for George W. Bush to want to give a portion of the tax revenues back to those who were “overcharged” in the 1990s. Over the next three years, however, the government witnessed massive reductions in those revenues. The reduction in government receipts was related to a number of developments over which the Bush administration initially had little direct control. The market dropped by $2 trillion in the summer of 2002, which led to major declines in capital gains tax receipts and taxes paid on cashing in stock options.30 When George W. Bush came to power in 2001, the Dow Jones Industrial Average was at 10,600 points but later dipped below 8,000, echoing the 24 percent drop of the Wall Street crash of 1929.31 In April of 2002, individual income tax receipts declined by 36 percent.32 That translates into a $150 billion reduction from the previous year.33 Also, there is credible evidence that about onethird of the revenue shortage could be structural in nature and that receipts would probably be $400 billion to $600 billion lower than originally calculated over the next decade. In the 1990s, such legislation as the Budget Enforcement Act imposed fixed ceilings on discretionary spending and mandated that any new tax cuts or spending increases be revenue-neutral. This meant that any new tax cuts had to be offset by tax increases imposed somewhere else and that any increases in entitlement spending would have to be offset by cuts in discretionary spending. When the budget was balanced in the late 1990s, the concern over spending growth began to diminish somewhat. The tax and spending proposals favored by the George W. Bush administration have not been focused on fiscal stability. Bush lobbied hard to get $75 billion for military action in Iraq, and the president signed a costly farm bill that is expected to add $170 billion in new spending over the next decade.34 Deficit spending for FY 2003-4 is expected to reach as high as $160 billion (1.5 percent of GDP).35 If GeorgeW. Bush’s tax cuts are made permanent and spending continues to rise at its current rate, the deficit will reach as high as $5.4 trillion over the next decade (not computing the current entitlement surplus).36 As increasing numbers of baby boomers retire and start drawing on their Social Security and Medicare, there will be substantial increases in entitlement spending that will drain the entitlement surplus relatively quickly.37
