FW: The long and short of it

[Karen Watters Cole]

Good proposal in plain English.  Even though this comes from an economist who as politician just lost the Massachusetts gubernatorial primary, thus making him a loser, he makes the case for dramatic short-term intervention and then long term resolution of a conflicting program.  There are valuable lessons to be learned from failure and losers, some whom find success in the future.  Just ask Jimmy Carter.  Or the US military, after Vietnam.  We can only hope the same for Arafat and Sharon and their countrymen someday.  From my lips to God’s ears.  – Karen Watters Cole Quick Tax Relief for an Ailing Economy By ROBERT B. REICH, NYT, 10.15.02 @ http://www.nytimes.com/2002/10/15/opinion/15REIC.html   WALTHAM, Mass. — Three weeks before Election Day, most American households are still mired in recession.  The American economy lost 43,000 jobs in September, the biggest drop since last February.  Many people who were looking for jobs last year have given up.  The ratio of jobs to potential workers continues to drop.  Meanwhile, take-home pay is going nowhere; last year median household income dropped for the first time in a decade.  Workers dependent on overtime, commissions or bonuses are watching paychecks shrivel.  And ever-bigger portions of their paychecks are going for health insurance — single coverage is up an average of 27 percent from last year, family coverage up 16 percent.   Americans look to Democrats for more secure jobs and better wages.  So why aren't the Democrats making Americans' economic worries more of an issue in the campaign?  The basic problem is that Democrats don't have a coherent view about what ails the economy and what to do about it.  Some of them accept the supply-side belief that taxes are too high on corporations and the affluent and voted in favor of the Bush administration's huge tax cut.  Most other Democrats cling to the neo-Hooverian orthodoxy of the 1990's that federal deficits are inherently bad.  In their view, the tax cut is largely to blame for the prolonged recession because it put the federal budget in the red.  They want to restore "fiscal responsibility."   While President Bush's tax cut is unfair, there's no logical connection between it and what's happened to median incomes and jobs.   The problem after the late-90's boom and subsequent collapse is that there aren't nearly enough buyers for all the goods and services the economy can produce.  Businesses have cut their capital spending because corporate profits have fallen.  And with disappearing profits, businesses can't give their employees pay increases and benefit packages.  Instead, they have to cut wages and health-care benefits.  And they aren't in any position to add more jobs.  Such businesses also don't buy more components and equipment and they don't rent more space. T hey stop investing.  Eventually profits of their suppliers begin to disappear, too, as do suppliers' payrolls.   We could enter a long and vicious cycle.  Workers whose pay and benefits are shrinking and who are afraid of losing their jobs simply don't spend a lot of money.  They wait for cheap deals.  So company profits get squeezed even more.   Even if a war with Iraq were to cost $100 billion, that amount of government spending would be too little and too late to give the economy the stimulus it needs.  The Federal Reserve Board, for its part, has cut interest rates just about as much as it can.   The only way to revive the economy is to get more money into the pockets of average working people.  And the best way is through quick tax relief.  Workers will spend most of a tax cut right away — because with declining take-home pay, they have to — and their spending will spark businesses to spend more.   The simplest way to put more money into consumers' pockets is to cut their payroll taxes, which will instantly fatten their paychecks.  Congress could exempt the first $15,000 of everyone's income from payroll taxes for two years, beginning immediately.  Everyone gets the same tax cut but it's more helpful to lower-paid workers since the payroll tax is so regressive.  And since employers no longer have to pay their share of these taxes, they would have a new incentive to keep more people on the payroll.   Yes, this would add to deficits in the near term.  But deficits aren't a problem when the economy has so much extra capacity.  Lost revenues can be made up in future years by repealing President Bush's tax cut after 2004, when most of the cuts are scheduled.   A payroll tax cut for working people is that most valuable of campaign initiatives: not only good economics but also smart politics for Democrats and even Republicans.      Robert B. Reich, secretary of labor from 1993 to 1997, is a professor of social and economic policy at Brandeis University.   Outgoing Mail Scanned by NAV 2002