The war on terrorism and the recession have forced President Bush to abandon some of his more doctrinaire economic policies, reports Conor O'Clery
It's intriguing to speculate why George Bush decided the other day to echo his father's famous 1988 pledge of "Read my lips - no new taxes" by telling an audience in California: "Not over my dead body will they raise your taxes."
For one thing they - the Democrats in Congress - are not seeking to raise taxes, not now anyway. For another, the President has offered himself as a hostage to fortune just as surely as did George Bush the First, who failed to get re-elected president in 1992 partly because he broke his no-new-taxes pledge.
Perhaps it is a case of the son determined to show the conservative wing of the Republican Party, that came to deeply distrust and then dump the father, that a Bush can keep a promise. Bush snr was not an ideologically-driven fiscal conservative and once dismissed Ronald Reagan's programme of tax cuts and increases in defence spending as "voodoo economics."
Bush jnr is now following precisely such a formula and does little on the economy without making sure he makes no enemies on the right. Hence his relentless pursuit of the interests of big business.
The irony is that George W. has become one of the biggest presidential spenders since Ronald Reagan. After four years of surpluses he is about to preside over a return to federal deficits, and it is the Democrats who are portraying themselves as the guardians of fiscal prudence.
The election year budget which Mr Bush will send to Congress on February 4th will not be balanced, warns the White House, which blames the war against terrorism and the recession. Both Republican and Democratic budget committees on Capitol Hill now estimate that the accumulated surplus from 2002 to the end of 2011 should be revised downward from the anticipated $5.6 trillion when Mr Bush came to Washington to $1.9 trillion.
The incredible shrinking surplus means that hundreds of billions of dollars generated by social security will be used to fund other programmes, something that both parties promised to avoid (Al Gore wanted to put it all in a "lock box").
Recalling in the aftermath of September 11th that he had pledged to run an overall budget surplus at least as large as the Social Security surplus, except in the event of recession, war or national emergency, the Presidsent remarked to his budget director Mitch Daniels: "Lucky me, I hit the trifecta."
Senate Majority Leader Tom Daschle blamed President Bush's $1.35 trillion tax-cut programme for the "most dramatic fiscal deterioration in our nation's history", charging that this had not only resulted in the erasing of budget surpluses and the return of federal deficits but had made the recession worse. Most analysts don't buy this, however, and recall that Senate Democrats signed off on the tax deal.
They say the biggest cause of this year's deficit is the recession, with its consequent tax drop and increase in social spending, and point out that the tax rebate cheques posted out last year with great fanfare - most families got about $600 in extra spending money - did not amount to all that much.
The trouble is in what lies ahead. In the next decade the tax cuts will increase as more breaks and reductions are phased in, while the deficit will grow due to increased medical costs and homeland security. Income-tax rates will be reduced by at least 3 per cent by 2006, with the top rate of 39.6 per cent dropping to 35 per cent.
The rolling tax cuts are expected to account for 45 per cent of the once-anticipated 10-year surplus, whereas the current recession could eliminate another 40 per cent and increased spending the rest.
"Over 10 years, the tax cut is the big culprit," said Robert Bixby, executive director of the bipartisan Concord Coalition, which promotes fiscal discipline.
Most of the tax cuts will benefit the wealthy. The new cuts that the President wants to put in a stimulus package would, Senator Edward Kennedy said last week, give wealthy individuals and corporations more than $115 billion in permanent new tax cuts, while providing less than $14 billion in tax cuts for low-income families.
With the first deficit for years now looming, Republicans in Congress are pressing for a cut in capital gains tax from 20 to 15 per cent, and for greatly reduced spending.
THE capital gains tax cut would mean lavishing 80 per cent of its benefit on the wealthiest two per cent of taxpayers, said the New York Times, nor would a capital gains tax cut stimulate the economy in the short term, the most pressing economic need; rather it would deepen the long-term fiscal hole.
Mr Bush's chief economic adviser, Lawrence Lindsey, once said that the idea of a capital gains tax cut was redolent of old Republican economic thinking, and not acceptable to the new "compassionate conservativism" as preached by the former Texas governor.
That, however, was during the election campaign. Now even the Democrats say they might buy it if there is a parallel tax break or benefit for the less wealthy.
The tax cuts were designed to cope with the recession, said Bush adviser Karl Rove recently, though it was proposed by the Bush campaign back in 1999 when the US was booming. That year and in 2000 the United States ran a massive budget surplus.
Both parties project surpluses will return by the end of the decade, but as economist Paul Krugman said last week: "If you believe those projections, I've got some Enron stock you might want to buy."
Conor O'Clery is International Business Editor of The Irish Times