Nothing But Politics

[Rick Faurot]

Tax Cuts Become A Juicier Target
By Mike Allen and Jonathan Weisman
Washington Post Staff Writers
Wednesday, August 11, 2004; Page A04
http://www.washingtonpost.com/wp-dyn/articles/A54944-2004Aug10.html

For President Bush, tax cuts have been an all-purpose elixir, a cure for budget surpluses and a bursting stock bubble, for terrorist attacks and boardroom scandals, for the march to war and a jobless recovery in peacetime.

Now, after three successive tax cuts, and after a record budget surplus has turned to a record deficit, the president faces an unenviable choice. He can either concede that his $1.7 trillion tonic has not worked as advertised, or he can insist that the economy is strong despite the slowdown in growth and job creation.

Last week's news of stagnant job creation has revived the debate over the effectiveness of the tax cuts, the centerpiece of Bush's domestic program. Economists of all political stripes say the tax cuts did jump-start the economy, which was in recession from March to November 2001. But to many, that kick is starting to look more like a sugar high than a cure for the economy's underlying weaknesses.

On Monday, Morgan Stanley's chief economist, Stephen S. Roach, dubbed this "The Mythical Recovery," hooked on three drugs now in increasingly short supply: tax cuts, rising government spending and low interest rates.

"Lacking in the organic staying power of job creation and wage earnings, the U.S. economy has become addicted to the steroids of extraordinary monetary and fiscal support," Roach told clients. "But with policy levers pushed to the max, the lifeline of support is now dangerously thin."

Democratic White House challenger John F. Kerry pounced yesterday, releasing a report on "George Bush's failed fiscal policies" and unleashing former Treasury secretary Robert E. Rubin to decry the failure of the tax cuts and "the horrendous long-term fiscal situation" they have put the country in. The charge -- even if incomplete -- has the ring of truth, said Gregory R. Valliere, managing director of the bipartisan Schwab Research Group.

"The jobs figures allow Kerry to say that the recovery is sputtering and the tax cuts didn't help much," he said. "It's a credible argument now. Kerry can say for the next month that the tax cuts didn't work. And he can say that with some justification: The tax cuts