In what turned out to be a surprisingly close vote, the U.S. House of Representatives this week passed a Democratic tax package supposedly designed to stimulate the economy and provide some middle income tax relief. Unfortunately, it was mostly a cynical exercise driven by election-year politics that will do little for the economy or the middle class.
The 221-209 vote - achieved only after intense lobbying by House leaders - was something of an embarrassment to Democrats who had portrayed the bill as a challenge to President Bush. They wanted it seen as a sign that Congress was earnestly engaged in "doing something" about the economy that the president had ignored.Earlier the same day, the House defeated a Republican economic recovery package proposed by Bush. The GOP version had the same flaw as the Democratic one, namely that it was mostly a case of political window dressing to make it seem like the president was earnestly engaged in fixing the recession.
In both cases, the issue was not whether the country would be measurably better off because of the legislation, but rather how Congress or the president might look to voters.
Prior to the vote, top American businessmen who attended congressional briefings did not seem optimistic that the tax packages would help much, nor would they have been disappointed if no tax legislation had been passed at all.
While the House bill does contain some elements helpful to small business as well as some capital gains tax breaks, there are at least two basic things wrong with the bill:
First, the up-to-$400 refundable tax credit for the 1992 and 1993 tax years comes too late to have much impact on the recent recession. The latest figures for 1991 show that the economy, while still sputtering, showed a better-than-expected performance in the last quarter of the year. Getting minimal monthly tax credits can hardly be described as a quick fix.
Second, the tax breaks for middle income Americans, although supposedly offset by higher taxes on the wealthy, would produce bigger federal deficits estimated at $30 billion. The higher taxes on the rich would not even start being collected until the third year of the program. Cynically, that's after this presidential election year has become history. In addition, there are fears that the additional deficit may become permanent because the new revenue would be spent for something else.
It is the deficits and the crushing national debt that are the root cause of the recession.
For decades, the conventional wisdom was that Congress could stimulate the economy with a burst of deficit spending. That may not work any longer, if it ever did, since interest on the national debt eats up such a big part of the federal budget - more than $200 billion a year. In such circumstances, adding to the deficit as a way of dealing with the recession is like trying to cure the symptoms by making the disease worse.
Instead of posturing for election-year political points, Congress and the president should get down to the business of making hard decisions about the deficit