Jewish World Review Jan. 30, 2002 / 17 Shevat, 5762

Jack Kelly

Jack Kelly
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Consumer Reports

Give economy pneumonia in order to protect it from a cold -- AMERICANS favor junking last year's tax cut, especially if repealing it would prevent a federal budget deficit, according to a poll conducted for ABC News. The poll, conducted by TNS Intersearch, indicated 45 percent of us favor cancelling the tax cut and only 36 percent want to keep it. The number favoring killing the tax cut rises to 52 percent "if doing so helped to avoid a deficit in the federal budget."

Americans oppose delaying or cancelling the tax cut, according to a Gallup poll taken for CNN and USA Today. According to Gallup, 38 percent of Americans think the tax cut should be "kept as planned," while 21 percent think it should be speeded up. Just 25 percent think the tax cuts should be delayed, and 11 percent of us think they should be repealed.

Confused? The TNS poll was the more recent (Jan. 17-20, vs. Jan. 11-14). The Gallup poll had the larger sample (1008 vs. 853). A possible point of reconciliation is the high number of undecideds in the TNS poll (19 percent, vs. 6 percent in the Gallup poll). This suggests a majority of Americans supports the Bush tax cuts, but much of the support is soft. (It also suggests the way a pollster asks a question has a heckuva lot to do with the response received.)

A point of agreement is the high priority Americans place on balanced budgets. The Gallup poll indicated that if we have to choose between tax cuts and a balanced budget, 62 percent of us would rather balance the budget.

It is doubtful our political leaders will give much more than lip service to this preference, because they remember the last president to make balancing the budget during a recession his top economic priority was Herbert Hoover. Today's Hoover is Sen. Edward Kennedy (D-Mass), who has called for repeal of part of the tax cut. Kennedy stepped where Senate Majority Leader Tom Daschle (D-S.D.) feared to tread.

Daschle blamed the recession on the tax cuts, which was ridiculous because the recession had begun three months before the tax cut bill was even debated in Congress, much less passed, and most of it has yet to go into effect. But having falsely accused the tax cuts of causing recession, Daschle was reluctant to call for their repeal, perhaps because he suspects the Gallup poll is a better gauge of public sentiment than the TNS poll. Kennedy directly and Daschle indirectly are challenging the wisdom of virtually every economist in the United States. There are two great schools of contemporary economic thought: Keynesian, and neo-classical (supply side). Both agree that trying to balance the budget during a recession is about the most stupid thing a government can do.

John Maynard Keynes said governments should run deficits during bad times, in order to jump start the economy, and then make up for the deficits by running surpluses in good times. His theory is very popular with liberals. The best way to stimulate economic growth, supply siders say, is let productive people keep more of what they earn. This will cause them to work harder and produce more. Since economic growth is chiefly what fills federal coffers, lower tax rates can sometimes produce higher tax revenues. This theory is very popular with conservatives.

Though sometimes presented by their partisans as opposites, Keynesian economics and supply side economics are not mutually exclusive. One can be both a Keynesian and a supply sider. And since the evidence of history indicates both theories are correct, that would be a good thing to be. The trouble with Keynesianism is not with the theory, but with human nature.

Government spending is popular and tax hikes are unpopular in good times as well as bad. So while politicians eagerly ran deficits during bad times, the surpluses during good times didn't materialize until recently.

Prolonged deficit spending is bad because it forces the government to spend ever more money on debt service, and because government borrowing forces you and me to pay higher rates of interest on the money we borrow. But there has been little correlation between federal budget deficits and economic growth. Deficits are a cold. Recessions are pneumonia. We ought not to give our economy pneumonia in order to protect it from a cold.

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01/28/02: Media is its own worst enemy
01/25/02: Journalists making road to peace a bumpy ride, or: A case study in stupidity
01/23/02: Toward a stronger defense at a lower cost
01/21/02: How Bush could be Generations X and Y's Kennedy ... and guarantee a GOP victory in the midterm elections

© 2002, Jack Kelly