By David H. Feldman
Originally published
THE FEDERAL government is spending nearly $1
billion a day on the recovery from Hurricane Katrina. The total tab owed by
The
The largest single overspender
in the
Given how little Americans save, foreign investors
now buy nearly half of the bonds that the U.S. Treasury issues to finance the
federal deficit. In a very real way, our government's ability to pay for
Hurricane Katrina relief is contingent on foreigners' continued willingness to
buy those bonds in exchange for selling us their goods.
This dependency on foreign loans reflects the
bipartisan failure of American political leadership to set priorities for the
federal government and to find ways to pay for them out of our own tax base.
Things didn't have to turn out this way.
In January 2001, the Congressional Budget Office
(CBO) sent the incoming Bush administration its long-term projections for
economic growth and its forecast for the federal budget. The government was
projected to run a budget surplus of $2 trillion between 2002 and 2006. Given
that cushion, borrowing several hundred billion dollars to finance recovery
from a national catastrophe sounds almost inconsequential.
Instead, President Bush decided that using the
surplus to reduce the national debt was of little economic or political value.
That surplus has morphed into a $1.6 trillion deficit, much of it financed by
foreign governments buying U.S. Treasury securities.
His tax cuts first were sold as a cure for
recession, even though they were too late to have much effect, and far less
costly ideas, like a temporary cut in the payroll tax, would have had a much
more immediate impact. The tax cuts also were sold as a way to spur long-term
economic growth.
The CBO report that greeted the incoming
presidency also contained a long-term forecast for yearly labor productivity
growth with no tax cuts in place. Rising labor productivity is what translates
into higher average living standards for American workers.
In 2001, the CBO's best
guess at productivity growth for the years 2006 to 2011 was a robust 2.3
percent annual rise in output per worker. By now, the Bush tax cuts have had
time to work their magic, yet the current CBO forecast as of August is for
annual productivity gains of only 2.1 percent between 2005 and 2010.
Unfortunately, the first fiscal responses to the
Katrina recovery effort that are now under consideration are gimmicks. They
include Sen. Byron Dorgan's, D-N.D., proposal to subject profits earned by oil
companies on crude oil above $40 per barrel to a 50 percent excise tax, with
the proceeds rebated to consumers.
Yet crude oil prices are set on a world market.
The most likely effect of this tax would be even higher prices in the
As satisfying as it may be to find a villain, this
recovery effort is a national responsibility and we need to use the full weight
of the nation's tax base. We can also afford it. Currently, federal tax revenue
as a fraction of the gross national product is at the lowest levels since
before the Korean War.
What is lacking is the political will to tell the
American people that the federal government's responsibilities have a real
cost. Many options exist, ranging from a temporary progressive income tax
surcharge to repealing the parts of the Bush tax cuts most heavily tilted
toward the wealthy.
Any mature fiscal response to this disaster should
include raising the needed revenues right here at home. Let's stop mortgaging
the future to
David H. Feldman is a professor of economics at the
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