It’s the Neoconomy, Stupid! What Awaits If Bush Wins

Neoconomy: George Bush’s Revolutionary Gamble with America’s Future, by Daniel Altman. PublicAffairs, 290 pages, $26.95.

With a week to go before we pull the lever, electoral-vote office pools are flush with bets, and partisans are calling Pennsylvania to hector swing voters—but few of us seem to be weighing George W. Bush’s economic intentions with as much care as we should.

It’s not as if Mr. Bush has made his tax dreams a secret. In addition to implementing two rounds of cuts favoring the wealthy—and last week quietly signing into law a $140 billion tax gift to corporations—Mr. Bush has said that he wants to make “tax relief” permanent, to “simplify” the tax code and create a “simpler, fairer, pro-growth system.” According to Daniel Altman in his provocative new book Neoconomy, this should have us quaking in our Pumas. While Mr. Altman’s revelations are unlikely to alter the course of the election, they’re a useful reminder that there’s more at stake in this political season than the war in Iraq (as if that weren’t enough).

President Bush’s tinkering with the tax code is changing the way that everything from schools to missile shields is paid for in this country, shifting the financial burden of the nation from one group of people to another and encouraging saving over earning. It’s the piecemeal dismantling of the tax system that’s been the dream of economic hawks for decades, and there’s much more to come. According to Mr. Altman, it’s nothing short of a revolution, with George W. Bush serving as the puppet for a group of academic ideologues.

A “cadre of neocons”—among them Martin S. Feldstein and R. Glenn Hubbard—are the main architects of the plan, and they’re free-market supply-siders, well-steeped in Reaganomics. Their wish list: the abolition of the estate tax, interest tax, dividend tax, capital-gains tax and corporate-income tax. The only tax not on the hit list is income tax, so you can see where this is going. The wealthy, who have estates, dividends and capital gains from their stock sales, would pay no taxes on them. Corporations would stop sharing their profits with the government. In the meantime, the working folk would continue to have money skimmed off their paychecks and would represent the federal government’s only source of revenue.

According to Mr. Altman, these neoconomists have noble intentions: to increase the economy’s growth rate “by changing how the nation uses its resources.” They want to encourage people and businesses to save and invest. He suggests that many in the Bush administration, who made their millions in corporate America, are in the thrall of the “corporate mindset,” which includes “a special kind of optimism—not unlike Ronald Reagan’s misplaced confidence in the power of tax cuts—that could make radical and revolutionary plans especially attractive.” Mr. Altman unfortunately sounds like an optimist himself; there are surely other, more cynical motivations for the Bush team’s obsession with reducing the tax burden on the rich, but Mr. Altman chooses not to delve into them.

The fact that the neoconomists were pretty much discredited during the Reagan administration, when massive tax cuts were supposed to increase the government’s tax revenue but instead had the opposite effect, did little to discourage them. They simply waited out the Clinton years, until the perfect vehicle for their ideology presented itself in the form of George W.

So far, Mr. Bush has implemented his two rounds of tax cuts, and as Mr. Altman illustrates in excruciating detail, they accrue disproportionately to those in the highest tax brackets. The President reduced taxes on capital gains and dividends, and launched a repeal of the estate tax. His future plans include making his tax cuts permanent and handing over parts of Social Security to individuals in the form of tax-free investment accounts—all likely to cripple the plans of any future Democratic successor, who will be forced to deal with the mushrooming deficit. There are suggestions in his rhetoric of a flat tax, last heard of when Steve Forbes was running for President.

Mr. Bush’s tax cuts were peddled to the public as a short-term “stimulus” for the sputtering economy, and the President takes full credit for the current “economic recovery,” as he calls it. But Mr. Altman points out other effective measures Mr. Bush might have taken to spark economic growth and create jobs: increasing government spending, investing in the labor force and encouraging innovation by jacking up the national budget for scientific research, for example. “In the long term … it was far from clear that tax cuts held the advantage,” Mr. Altman writes. “But the neoconomists had made up their minds; tax cuts, and only tax cuts, would dominate their agenda.” He points out that Mr. Bush could have applied short-term, targeted tax cuts rather than permanent ones aimed mostly at the wealthy, who were the least likely to spend the money right away.

If the neoconomists’ vision is carried to its logical conclusion, Mr. Altman says, “there is a danger that the final steps could result in chaos.” The tax base would begin to shrink, low-income Americans would have a hard time saving money, and tax rates would rise significantly for the majority still shouldering the tax burden. The growing minority who received their income from stocks and bonds, rather than salaries, would pay nothing toward America’s “cancer research, its international diplomacy, its military deterrent, the maintenance of the interstate highway system, the space program or almost anything else the federal government did.” It sounds less like chaos and more like feudalism.

Mr. Altman faced a real challenge in trying to make arcane tax law readable and interesting. Neoconomy is not entirely successful in this regard: Its arguments are complex and its pages sagging with facts, and Mr. Altman attempts to counteract the dryness with bursts of glibness. This is the sort of book you pick up because you should rather than because you want to. But it would help if the Kerry campaign were to airlift it, in Cliffs Notes form, over to Ohio and other states where people are perversely tempted to vote against their economic interest.

Sheelah Kolhatkar is a reporter at The Observer. It’s the Neoconomy, Stupid! What Awaits If Bush Wins