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Bush’s class-war budget

After his inauguration extravaganza to launch his second term, Bush has moved on to his domestic agenda, what one commentator has called ‘top-down class warfare’. LYNN WALSH writes.

IN THE FIRST major policy initiative of his second term, Bush has launched a savage, class attack on the poorest sections of the working class. On February 7 he set out proposals for a $2.57 trillion budget for the fiscal year (FY) 2006, starting 1 October 2005. If accepted by Congress, it will eliminate or brutally cut 150 federally funded social programmes. The hardest hit will be the children of low-paid workers, the unemployed, the homeless, and the elderly poor.

At the same time, Bush wants to make permanent his first-term tax cuts for the rich and the super-rich – and hand them further tax concessions into the bargain. Military spending will rise another 4.8% to a grotesque $419.3bn, not including the cost of the Iraq war. Significantly, the $19bn increase in military spending almost exactly matches the $20bn cut in non-defence, domestic spending. To give the appearance of even-handedness, there are sham proposals to cut back farm subsidies and the Pentagon’s weapons-purchasing plans.

The growth of the budget will slow, rising 3.6% in FY 2006 compared with a massive 8.2% in FY2005. But the class bias of the budget is blatant. Without mercy, the poor will be squeezed even more to pay for imperialist wars and tax cuts for the wealthy.

With the ballooning of the Federal deficit to around $427bn, surpassed by a record current account deficit of $617bn (5.3% of GDP), Bush has been forced to make a gesture of appeasement to international financial markets – the foreign capitalists who finance the US’s ‘twin deficits’ to the tune of $3bn a day and who now own 43% of US government bonds. So ‘deficit reduction’ is the name of the game, and Bush claims that proposals detailed in his budget will halve the federal deficit by 2009. And what better way is there of demonstrating fiscal responsibility than by attacking ‘wasteful’ social programmes?

Most of Bush’s proposed cuts are targeted on non-defence ‘discretionary spending’, annually renewable programmes such as food stamps, subsidised low-income child care, day centres for the elderly, inner-city community projects, etc. Spending will fall from $391bn in FY2005 to $389bn in FY2006 – and then frozen for five years, regardless of population growth and inflation. This would be the first sustained cut in these programmes since the early 1960s.

This category of spending, however, makes up only 18% of the budget. Moreover, low income social programmes account for only 6% of the cost of new legislation since 2001. Yet they are being targeted for 49% of Bush’s proposed cuts.

Bush has not dared, so far, to try to cut Social Security and Medicare entitlements (costing $540bn and $380bn in FY2005). The living standards of a broad swathe of ‘middle class’ retirees (from blue-collar workers to well-off professional strata) rest on these benefits, which are based on contributions during employment. Attacking these programmes would provoke massive opposition, and spell electoral disaster for Bush and the Republicans. Bush already faces enough political trouble trying to ‘reform’ Social Security by diverting a portion of contributions into ‘personal accounts’, a move which would benefit only the big finance houses managing the accounts.

Bush’s cuts in discretionary programmes are vicious – but they will have a very limited effect on the deficit. The projected saving of 16% over five years, or $66bn a year, is about one sixth of the deficit. Compare this with the $120bn a year loss of revenue from cuts in taxes on capital gains and dividend income – equal to one third of the deficit.

Bush’s fiscal folly

DURING HIS FIRST term, Bush appeared to be following president Reagan’s maxim, ‘Deficits don’t matter’ – though he never openly challenged fiscal conservatives, who see him as an irresponsible, ‘big-government’ conservative. The 2000 surplus of 2.4% of GDP became a 3.3% deficit by 2005, a massive negative swing of 5.7% of GDP. This was partly the result of the recession that followed the collapse of the stock exchange bubble. But the deficit was enormously magnified by Bush’s military spending and especially by his massive tax cuts for the wealthy.

Total Federal spending is not high by historical measures. In the current fiscal year, FY2005, it is estimated (including new funding for the Iraq occupation) to be about 18% of GDP, lower than any year from 1975 to 1996. But tax revenues in 2005 are a lower share of GDP than at any time since the 1950s. Revenues have fallen from 20.9% of GDP in 2000 to a projected 16.8% in 2005. In fact, the drop in tax revenues accounts for 4% of the negative fiscal swing of 5.7% of GDP (57% of the deterioration).

It is not ‘run-away welfare spending’ that has caused the fiscal crisis. Increases in total domestic (non-defence) discretionary and entitlement spending account for only about 15% of the cost of new legislation enacted since January 2001 (despite increased unemployment and poverty during the recession). About 37% of the cost is attributable to increased military and home security spending. But tax cuts account for nearly half, 48%, of the cost of legislation enacted under the Bush regime.

Faced with rising Federal budget deficits, both Reagan and Bush the Elder increased taxation soon after being elected, despite ‘read my lips’ campaign promises that they would never raise taxes. From the standpoint of the ruling class, they took ‘responsible’ action to curb soaring deficits during recessions.

But not George W. Despite the deepening recession during 2001 and pre-9/11 plans to increase military spending, Bush implemented a tax cut in 2001. Despite the war in Afghanistan and preparations for the invasion of Iraq, Bush made another tax cut in 2003. While workers and young people were called on to make sacrifices – especially those in the armed forces – the wealthy received bumper tax concessions. Top tax rates were reduced, taxes on capital gains and share dividends were halved. A quarter of the cuts went to the top 1% of wealthy taxpayers, 70% to the top 20% – with the small change spread very thin amongst the majority of working people.

Tax cuts plus increased military and security spending have pushed the Federal deficit to an estimated $427bn, or 3.6% of GDP. This is a record in dollar terms, though smaller in GDP terms than the 6% deficit under Reagan in 1983. If, however, government borrowing from the Social Security trust and public employees pension funds are included (sooner or later it should be repaid), the total deficit is $600bn, about 5% of GDP. Under Reagan, however, US capitalism was in a much stronger position internationally – still a creditor to the rest of the world. Under Bush the Younger, the US depends of foreign creditors to finance the twin deficits. The US now owes the rest of the world over $3 trillion (its negative ‘net asset’ position).

Yet the FY2006 budget seeks to make the 2001 and 2003 tax cuts permanent and also implement two new tax cuts for the super rich. Making the first-term cuts permanent would cost $53bn over five years and $1.1 trillion over ten years. The two new measures reverse two laws introduced by Bush the Elder to limit some tax exemptions for the super-rich. These would cost $23bn in FY2006 and $117bn over ten years. Around 97% of the benefit would be for those earning over $100,000 a year. Half the benefit of these two cuts would go to those with incomes over $1 million a year: around 300,000 taxpayers, who would save an average of $19,000 a year. At the same time, Bush’s proposed social cuts will, among other things, deprive around 300,000 poor families with children of vital food stamps.

Commenting in his New York Times column (11 February), liberal economist Paul Krugman rightly describes Bush as "someone who takes food from the mouths of babes and gives the proceeds to his millionaire friends". His latest budget, says Krugman, is "top-down class warfare in action".

Curtains of deception

BUSH CLAIMS THAT his budget proposals will halve the Federal deficit by FY2009. It is projected to fall from $427bn in FY2005 to $390bn in FY2006 and down to $233bn in FY2009. If achieved, this would reduce the deficit from 3.5% to 1.5% of GDP, a drastic cut. But few serious commentators believe that Bush’s projection is credible.

"This is a hide-and-seek budget", complained Kent Conrad, senior Democrat on the Senate budget committee: "Using curtains of deception, it conceals the damage it is doing".

Some of Bush’s proposed cuts, however, are likely to prove a sham. Unlike the social spending cuts, major cuts in farm subsidies and Pentagon weapons procurement are not likely to get through Congress unscathed. Congress has considerable budget-making powers. The six powerful congress sub-committees which have to agree the budget are packed with politicians in the pay of big agribusiness corporations and arms makers. Moreover, Bush’s proposed reorganisation of social programmes under the Commerce Department and other changes will require legislation, which could be obstructed in Congress.

The credibility of the FY2006 Budget is also undermined by major sins of omission. The cost of the wars in Afghanistan and Iraq, now running at over $5bn a month, are not included. Bush will shortly be asking Congress for another $80bn for FY2005, and there will be similar requests for extra-budgetary appropriations in following years.

The Budget also makes no allowance for reform of the Alternative Minimum Tax (AMT), which Bush supports. This parallel tax was introduced to prevent total tax evasion by the wealthy, ensuring they pay at least a minimum amount. Through inflation, however, the AMT has begun to bite on a layer of upper-middle-income taxpayers. Indexing the threshold to allow for inflation would cost $500bn – not provided for in the FY2006 budget.

The biggest omission of all, however, is the cost of privatising Social Security, the Federal government pension programme. It is estimated that, in the transitional period, the cost of diverting a proportion of payroll taxes into ‘personal accounts’ (invested in the stock market) would be at least $1.5 trillion. Again, no provision for this in Bush’s budget.

Commenting on these hidden costs, a Business Week editorial commented: "These are real numbers that should be included in any real budget. If president Bush believes the policies proposed are good for the nation, then he should lead an honest dialogue about how we should pay for them". (Wanted: An honest budget, 14 February)

Faith-based economics

BUSH’S FY2006 BUDGET is an exercise in faith-based economics. The fiscal arithmetic just does not add up to major deficit reduction. "Clearly their deficit numbers are not credible", commented David Greenlaw of Morgan Stanley. "They haven’t been for the last few years and they shouldn’t be looked at with much seriousness now". (Washington Post, 7 February) Apart from Enron-style creative accounting, the budget is based on the optimistic assumption of 3.3% average annual growth of real GDP for five years. It makes no allowance for any cyclical downturn, let alone a major economic crisis.

Evidently, Bush is gambling on a growth-induced windfall of tax revenues, similar to the Clinton administration’s windfall revenue from the late 1990s bubble economy. Only a growth miracle could bring fiscal salvation by 2009. The Bush regime believes that massive tax handouts to the super-rich will create growth, producing a bumper tax harvest. But the next five years will not be a repetition of the late 1990s boom. Currently, global growth depends overwhelmingly on US consumption, which is financed by unsustainable levels of domestic and foreign debt. Unprecedented imbalances between the deficit countries (US, Britain, etc) and surplus economies (China, Japan, etc) and the associated misalignment of currencies cannot continue indefinitely.

Even if there were to be a surge in US growth, however, the Bush administration would not collect the kind of tax-revenue bonanza that occurred under Clinton – for one simple reason: Bush has drastically slashed the very taxes that would produce substantial extra revenue from higher profits and capital gains. Even the Republican-appointed director of the Congressional Budget Office, Douglas Holz-Eakin, commented: "I don’t think we are likely to see a repeat of the 1990s. We can’t grow our way out of this". (New York Times, 7 February)

Nor are the strategists of finance capital convinced. "I don’t think this approach will look very credible", commented Fred Bergsten, president of the Institute for International Economics. "What the markets look for is… the trajectory. The message is that the underlying trend, contrary to the administration’s assertions, is a steady increase in the deficit". (International Herald Tribune, 9 February)

Day of reckoning

FOR THE WORKING class, Bush’s budget proposals are a savage class attack on social benefits that provide vital life-support for the poorest and most vulnerable sections of workers. Combined with unemployment and eroded wage levels, social cuts will push millions into poverty conditions not experienced since the 1930s. Cuts to urban programmes will accelerate the decay of run-down inner city areas. These measures, particularly if implemented on the scale proposed by Bush, will provoke growing struggles by workers, young people, community and minority organisations. Liberal critics of Bush fear that his ‘top-down class warfare’ could trigger riots or uprisings in many cities, as in the late 1960s and early 1970s.

From the standpoint of intelligent strategists of the US capitalist class, Bush is pursuing an irresponsible, reckless policy – the counter-part of his military adventure in Iraq. The growth of US capitalism rests on a mountain of debt. Through his fiscal charlatanism on behalf of the super-rich, Bush is adding a new peak of long-term debt. For a time, this may conceal the underlying decay of US capitalism. But the day of reckoning will come. Then it will become clear to everyone that the Bush regime, through its fiscal follies and military adventures, has enormously aggravated the deep crisis of US and world capitalism.


Social cuts

A HUNDRED and fifty federal programmes for health, education, environmental protection and social welfare will bare the brunt of Bush’s proposed cuts. This (non-defence) discretionary spending (requiring annual appropriations by Congress) accounts for only 18% of the Federal budget. Bush wants a $20bn cut in fiscal year 2006 (from 1 October 2005), followed by a freeze until 2009.

In education, literacy projects, student grants, and college access courses for low-income students will be slashed. But there is an extra $1.5bn for federal ‘No Child Left Behind’ testing in high schools.

Housing assistance for the disabled and chronically sick, help with heating bills, etc, will be cut. Several programmes will be shifted to the pro-business Commerce Department. Up to 300,000 will be deprived of food stamps, and 300,000 child-care places for poor children will go.

Veteran Administration (VA) health services will be cut, with higher enrolment fees and prescription charges. Subsidies to the Amtrak rail network will be cut, forcing line closures. States and cities will be hit hard by cuts in block grants. New York City stands to lose its $267 million grant, used for literacy classes, homeless shelters, and many other social programmes.

One major Congress-mandated programme, Medicaid, will be cut by $60bn over ten years. Sharp reductions in federal grants to the states, which jointly fund Medicaid, will cut programmes providing medical care to around 50 million poor children, elderly, disabled people, unemployed workers, etc, who have no health insurance.

Social Security (national state pensions) and Medicare (associated health care for retirees) are not being cut, but Bush is preparing plans for the partial privatisation of pensions.


Military spending

MILITARY SPENDING for FY2006 will rise 4.8% over the current year, to $419.3bn, a massive 41% increase since 2001. This does not include an imminent Bush request for a ‘supplementary appropriation’ – another $80bn (after last year’s $115bn), including $75bn to cover the spiralling cost of occupation of Iraq and Afghanistan. Within the military budget, however, the Bush regime is sharply increasing spending on forces’ pay and retention bonuses, and the expansion of special operations forces. To allocate more to current combat priorities, the budget projects $55bn cuts for big weapons systems, such as fighter jets, naval destroyers, submarines, and other cold-war era hardware.

Will these weapons cuts actually be implemented? Even the New York Times expresses scepticism as to whether Bush will "manage to get the cuts past the arms industry’s Congressional protectors". (Editorial, 8 February) "Slowing weapons-building programs or cutting back on the number of weapons ordered by the Pentagon is never enough. History shows that these programmes will be back to eat up tax dollars another day if Mr Bush fails to kill off completely the contracts that feed them". The political hirelings of the big arms-makers who sit on Congressional committees, backed by armies of corporate lobbyists, will tenaciously fight any such cuts. While Bush is always eager to cut social programmes, he has never shown any inclination to stand up to big-business interests.

Homeland security will get a 7% increase, the State Department 17%. The department of energy will get an extra $20bn to help develop tactical nuclear weapons. The secret budgets of the intelligence services will undoubtedly increase. NASA’s budget will increase by 2.4%, including $16.5bn towards Bush’s prestige project for a manned mission to Mars. Yet there will be no funds for a mission to upgrade the Hubble space telescope, an immensely valuable research tool.


Farm subsidies

BUSH IS proposing deep cuts in farm subsidies – which are likely to prove a sham. Congress will be asked to reverse his 2002 legislation that expanded subsidies, to save $8.2bn over ten years. Emergency compensation payments for crop failure, floods and droughts will also be slashed, as will various conservation projects. Bush’s budget, comments the New York Times (8 February), "offers little help for family farmers struggling to deal with the out-of-whack economics of an agricultural system that is distorted by monster subsidies to corporate farmers".

Hardly anyone seriously believes that these cuts will be agreed by Congress – or that Bush really expects they will be. Friends of the big agribusiness corporations, like Thad Cochran, a Republican senator from Mississippi, has already declared total opposition. A member of the Senate agriculture committee and chair of the key Appropriations committee, Cochran says: "Frankly, I don’t think anyone in the administration really thought Congress would go along with this". (Congress unlikely to embrace Bush wish list, Washington Post, 8 February).

A hundred agribusiness groups, including cotton and rice growers in the reddest or red (Republican-voting) states, like Alabama, Arkansas, Georgia, Louisiana and Mississippi, are gearing up to fight Bush’s proposed farm cuts.


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