The major legacy of the Bush presidency will be his deliberate steps to give more money to the rich, writes Vincent O'Doherty.
The US administration of President Bush is now in the sixth year of its eventual eight-year tenure. It is a year which marks an important milestone in one of the administration's least publicised policy areas - the increasing incomes of the very rich through reductions in their proportionate share of federal taxes, and through federal legislation to generate increases in their incomes.
Amidst the widespread opposition to the policies of the Bush presidency, both from liberal America and from foreign political commentators, most disagreement concentrates on the Iraq war, on US foreign policy, on human rights issues and on alleged excesses of executive power.
Relatively little is said or written about US economic or financial policies, although the huge twin deficits in the US public and current accounts are recognised worldwide as the greatest threat to present world prosperity. In America itself five years of strong economic growth have rendered terms such as "economic policy" or "future planning" all but inaudible, both in Government and in public debate.
But much is happening in the administration's financial programmes and much of it is likely to provide a more controversial legacy of the Bush era than its foreign policy. Federal tax cuts constitute the best known part of this story.
The president made his tax cut policy a key feature both of his election campaign and of his first term. Introducing his first tax cut bill in 2001 he said: "These are the basic ideas that guide my tax policy: lower income taxes for all with the greatest help for those most in need . . ."
The bills enacted by a friendly Congress in that year and in each subsequent year are delivering very different effects from this worthy intention. The legislation is very complex, being spread over the years to 2010 and characterised by step changes year-by-year in targeted rate reductions, and rule changes. In the first few years the tax cuts produced modest but useful savings across the board, notably to lower earners. But in the final four years the law will produce a much more uneven distribution.
The reason why 2006 is significant is that starting this year the top 1 per cent of incomes will receive 39 per cent of the total value of all federal tax cuts (in the early years their benefit was 10-15 per cent); this percentage increases each year to 2010 until the top one per cent of incomes receive 52 per cent of the value of tax cuts in that year. What is most surprising is that, although these figures are well known and have been published and discussed, they attract remarkably little attention.
Federal tax cuts are only part of the story of the policy of increasing the incomes of the top one per cent of income earners at public cost. Consider the following:
r Corporate taxes have been and are being substantially reduced. In 2000 federal corporate taxes represented 2.5 per cent of gross domestic product (Ireland on the same calculation was 3.8 per cent). In 2002 the percentage of GDP contributed by corporate taxes had fallen to 1.5 per cent with further falls to follow from the 2002 and 2003 legislation; the US now has one of the lowest corporate tax burdens in the developed world. No change has occurred in tax rates but accelerated depreciation, tax shelters and tax subsidies have multiplied.
r No-bid contracts are awarded to friendly suppliers at prices which appear to be away above the market price. Most do not come to public knowledge, but Halliburton's sales of gasoline to the US army in Iraq and Carnival Cruises rentals of cruise liners for emergency accommodation at New Orleans are two that have been widely reported.
r "Pork" for business: "Pork" is the traditional US term for government gifts or thank-yous to particular congressmen - a bridge here, a highway there - a system little different from that in most democracies. In the present administration, however, the system has been used much more widely to provide benefits - tax concessions, subsidies, concessions on federal land, etc - for industry sectors and individual businesses. The number of such "line items" (specific cases) is estimated to have more than trebled compared to previous administrations.
r Public programmes used for the creation of business opportunity: The new prescription drug programme - in principle a simple federal funding of part of individuals' drug costs - has had its delivery forced through business channels with the legislation largely designed by the health insurance, health service businesses and drug companies who are benefiting from implementing it; the customer/patient must choose a "plan" from some 40 competing providers in order to secure the federal payments. It is already clear that this delivery mechanism is greatly increasing eventual public costs to the benefit of the businesses involved.
All of these are benefits to business and to the extent that they become reflected in declared profits they will become benefits to shareholders. But the top income earners are largely also the top business figures. And the record shows that business benefits flow more than proportionately to top executives - the already rich. Extra profits to business, through such measures as outlined above, represent to a significant extent extra income to the top 1 per cent.
The complexity of US budgetary practice makes estimating the effects of these measures very difficult. But the combination of federal tax reductions to the top earners and of federally enacted legislation to boost the earnings of top earners, is massive by any standard, certainly historic, probably unprecedented. These measures are accompanied by budget action to part-fund their costs by cuts in social expenditures such as Medicare, Medicaid, student loans, community development block grants, police cost supports, etc and by action to minimise longer-term costs that would reduce cash flow available to fund them - this is the administration that reduced funds for the New Orleans levees and eschews energy conservation commitments.
Yet none of these effective increases of income to the very rich at the cost of other taxpayers and ordinary citizens, is illegal and the American voter appears to accept passively that those in charge will use their powers to benefit themselves and their friends. Corruption is not a word being used; and if it were to be used it would be in a moral, not a legal sense.
How to characterise such a policy? Robin Hood in reverse? Or "the greed of the elites"? Or, as the administration argues, incentivising the entrepreneurial class who will invest their tax savings and create further economic growth?
Outsiders are not uninvolved in these US policy issues, even though they appear to be domestic and internal. Those outside the US already live with the worrying reality of an America living well beyond its means, a consumer economy in which both government and citizens have been mortgaging their future incomes to pay for current consumption for many years. And foreigners are funding the major part of this excess spending.
The eventual and inevitable correction in the US twin deficits is the event most likely to be the trigger of a downturn in the strong world economy. It will affect those outside the US as much, and perhaps more, than US citizens. The largest component of the soaring public budget deficit is attributable to tax cuts. History may record that tax giveaways to the US rich precipitated a world recession.
Vincent O'Doherty is a Dublin businessman and former chairman of Superquinn. He now lives part of the year in the US