Bush Tax Policies Creating Permanent Deficit

Even if the economy rebounds, Bush’s tax policies make it highly unlikely that the nation’s record deficit will be erased.

As they did in the ’90s, the wealthy will receive a disproportionate share of the reward when the economy and the markets pick up again. But because of these tweaks to the tax code, the government will harvest much less of the windfall than it did during the Clinton years.

For example, instead of taking compensation in salary, those who can will choose to take income in dividends. (By increasing Citigroup’s dividend, as he did last week, outgoing CEO Sandy Weill just granted himself an annual stream of income of $32 million that will be taxed at 15 percent. Under the old regime, had he chosen to take that sum via options or a bonus, he would have paid more than twice as much in taxes.)

The current budget predicts massive gains in federal revenues down the road — just as the administration’s previous two budgets did. The 2004 budget expects (hopes?) that revenues will grow by about 5 percent in 2004, by an impressive 11 percent in 2005 and then by between 5 percent and 6 percent in each of the three years thereafter.

Don’t believe it. The Bush administration has been woefully off-base when it comes to projecting federal revenues and expenditures. Even if economic growth meets its expectations, the recovery in federal revenues won’t. They have changed the rules too much.