A week ago today, President Bush made one of the most important and impressive announcements of his presidency. Thanks to a robust economy that has led to significantly increased tax revenues, the projected federal deficit will be almost a third lower than original forecasts.
That was big news for the country and bad news for Democrats, who were counting on rising deficits to help propel them back into the majority on Capitol Hill. Speaking to an East Room audience that included Treasury Secretary Henry Paulson, who had been sworn in the day before, Bush joked, “Mr. Secretary, you’ve been on the job one day and you’ve got a pretty strong record.”
Everyone had a good laugh; but, in truth, it is Bush who can claim one of the most remarkable economic recoveries in recent memory. The road back to prosperity over the past five years has been a long, hard climb for the country and this president, who has had to battle terrorists hellbent on the destruction of the United States, fight anti-tax-cut Democrats and even take on Mother Nature at her worst.
A little history puts the economic achievements of the Bush presidency in some context. First, the Clinton-era dot-com economy, which Democrats invoke so fondly and so often, toppled and triggered a recession just in time for Bush’s swearing-in. Then Sept. 11, 2001, hit the economy with devastating force, while the federal government had to absorb big increases in defense and homeland security spending. Although the country began to recover, its economic fortunes were battered once more by Hurricane Katrina; and today, war in the Middle East has sent energy prices skyrocketing.
Few presidents have had to face the kind of challenges — economic and otherwise — that have characterized the Bush presidency. Yet last week he could boast 18 consecutive quarters of economic growth with a 5.6 percent rate for the first quarter of this year. Those numbers translated last year into a 14.5 percent increase in tax revenues, to the tune of $274 billion, the largest revenue increase in 24 years. The administration expects an 11 percent increase this year.
Add to that the creation of more than 5.4 million new jobs in the past three years and a 4.6 percent unemployment rate, and Bush and Congressional Republicans have a good economic record to run on in November, one rooted in a lower tax philosophy. Clearly, Congressional Democrats, who have cried crocodile tears for months over the size of the deficit, have been itching for a fight over whether to make the president’s earlier tax cuts permanent.
While foreign policy — the war in Iraq, the broader war on terror, the current Israeli military actions — will be front and center as a top election issue, the announcement that the administration is now “ahead of schedule” in its plan to cut the deficit in half by 2009 has cost the Democrats their central talking point against the president’s tax cuts.
Instead, they are left with photo opportunities at local gas stations devoid of any real solutions to high gas prices and an economic plan featuring higher taxes for the “rich.” Neither approach can withstand any serious intellectual scrutiny. In fact, the notion that the rich aren’t paying their fair share in taxes was debunked last week by The New York Times.
As Times reporter Edmund Andrews wrote, “Tax revenues are increasingly dependent on the fortunes of the very rich.” According to Andrews, who did his level best to belittle the importance of the government’s increasing tax revenues, the top 1 percent of taxpayers are now supplying 30 percent of individual federal income tax revenues, while the top 10 percent (incomes of more than $100,000 a year) pay two-thirds of taxes.
Here’s the fact Democrats don’t know what to do with. More than 40 million lower-income Americans don’t pay any federal taxes at all. We have created a society in which a smaller and smaller number of people are picking up a bigger and bigger tab for the cost of running the federal government.
In their rush to punish the rich, Democrats would be wise to remember the story of the goose that laid the golden egg. Across-the-board tax cuts may put more money in the pockets of the wealthy, but it is this segment of the American public that pays the biggest share of taxes, makes the largest investments in the country’s economy and, in doing so, creates jobs. That may seem like Economics 101 to many of us, but it is a reality that most Democrats reject out of hand, believing that redistribution of wealth is a moral imperative and, anyway, class warfare makes good politics.
Unlike balancing the budget, the projected lower deficit as an issue by itself may not push most voters who are more concerned with the cost of living than the cost of government. But it is a major political setback for what I suspect is the Democrats’ strategy to defeat any and all attempts to make the president’s tax cuts permanent, in part, by portraying themselves as fiscal deficit hawks. To paraphrase an old line, “That bird won’t fly.”
The economic numbers now are on Bush’s side. His economic policies are increasing tax revenues, bringing the deficit down and creating millions of jobs. Voters now have a clear choice in November when it comes to the economy: continue Republican tax cuts that are working or “change direction” and get Democratic tax increases that will cost jobs.
Former House Republican Conference Chairman J.C. Watts (Okla.) describes that choice better than anyone I’ve ever heard: “Democrats want to create more taxes. Republicans want to create more taxpayers.”