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COLUMN RIGHT : Bush Steering Economy Into a Black Hole : He's broken promises against higher taxes and higher rates in order to fund higher spending.

October 28, 1990|PAUL CRAIG ROBERTS | Paul Craig Roberts is the William E. Simon Professor of Political Economy at the Center for Strategic & International Studies in Washington

In his pathetic pursuit of a budget deal, George Bush is pulling the economy and the Republican Party down with him. Any agreement that emerges will be no less a fraud than the agreements of the past decade, none of which reduced the deficit.

The purpose of each budget agreement has always been to avoid a spending cut. This year's deal is no different. In the absence of a budget deal, the Gramm-Rudman limitations would allow Congress to spend only $10 billion to $20 billion more in 1991 than in 1990. That's not enough for the incumbents to buy their reelection. Congress wants at least $130 billion more. The budget for fiscal 1991 that was submitted last February specified a $1.23-trillion budget. By Sept. 30, spending for 1991 had moved up to $1.36 trillion.

Bush has broken solemn promises against higher taxes and higher tax rates in order to fund higher spending. The proof is that the deficit in 1991 will be larger than Ronald Reagan's biggest.

To hide from the public the enormous jump in the deficit caused by election-year spending, Congress and the Administration are pretending that the real budget issue is over how to increase taxes on 65,303 Americans who have million-dollar incomes. Congress wants to raise their tax rates, and Bush wants to take away their deductions for mortgage interest and state and local taxes.

To comprehend the fraud that both branches of government are perpetrating on the public, consider the following facts: America has about 250 million people. Those with million-dollar incomes comprise a tiny 6/100 of 1% of the population. If the IRS seized every dime of their incomes, it wouldn't come close to balancing the budget. In 1988, the most recent year for which IRS statistics are available, these 65,303 people paid $43.9 billion in income tax--an average of $675,000 each. If that's not paying taxes, what is?

Bush's plan to discriminate against the rich by cutting back their deduction for mortgage interest would add to the declining real estate market and worsen the cost to taxpayers of the S&L bailout. There is a large surplus of upper-income housing on the market, the value of which will plummet if mortgage interest is not deductible. Just like the income tax itself, once the rich lose their mortgage interest deduction, the rest of us will follow.

The U.S. government is currently making every economic mistake in the book. Its fiscal policy is focused on the deficit, ignoring the weakening economy. Its regulatory policies have driven down the values of assets held by S&Ls, banks and insurance companies, thus weakening our financial institutions just as recession threatens. The Federal Reserve, demanding a recessionary fiscal policy, is keeping interest rates high as the economy weakens. The Treasury, following Carter-era policies, favors an ever lower dollar.

Bush's belligerency in the Middle East more than doubled oil prices which, inappropriately, show up as inflation and feed into cost-of-living indexes, resulting in additional billions in Social Security payments and other cost-of-living adjusted expenditures. The Fed pretends that the higher prices signal monetary inflation that prevents any ease as the economy teeters on the edge of a black hole.

On top of this combination of the worst policy mistakes since the Great Depression, Bush wants to add $35 billion a year in higher "clean air" regulatory costs and$35 billion a year in tax increases.

This is a prescription for maximum economic failure, which is no doubt the reason the Democrats have led Bush into the trap. Handicapped by a presidential nominating procedure that produces the weakest possible candidate, the Democrats are hoping to engineer a crushing recession that the liberal media will blame on Reagan, Bush and "the rich."

Nothing suits the party of big government more than a failed economy to cause people "to vote their pocketbooks," return a Democrat to the White House and unleash a new era of budget expansion to "deal with the problems of the economy." The question is why Bush is working so hard to elect a Democrat.

The disastrous course of Bushonomics is further revealed by the Administration's approval of the appointment of Michael Dukakis' chief economics adviser, Larry Summers, to the $185,000-a-year chief economist job at the World Bank. Summers claims that Reagan impoverished the Third World by jacking up interest rates to finance tax cuts. In fact, interest rates fell by half under Reagan, but anti-Reagan propaganda is now the chief requirement for employment in Washington. House Democrat Beryl Anthony says Bush should change parties. By all appearances, he has.

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