| The Bush White House and Economic Policy|
Washington Post Business and Economy Columnist
Wednesday, June 04, 2003; 11:00 a.m. ET
Five months into his job, how is President Bush's top economic adviser doing? Stephen Friedman was appointed late last year when the White House shook up its economic team in the face of criticism that the administration wasn't pursuing a coherent policy for returning the economy to strong growth. Friedman appears to have won the president's confidence, but Washington Post business and economy columnist Steven Pearlstein writes today: "The view from outside the White House ... -- from Capitol Hill, from the Cabinet agencies and from old hands around Washington -- is that [Stephen Friedman] has a ways to go before mastering the Washington game." Read the full column: "Stephen Friedman's First 5 Months."
Washington Post columnist Steven Pearlstein was online earlier today to discuss this topic. A transcript of the discussion follows.
Steven Pearlstein writes about business and the economy for The Washington Post. His columns on the economy appear every Wednesday and Friday.
Editor's Note: Washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.
Mt. Lebanon, Pa.: So, how about some real numbers? How much is the Bush tax cut going to increase the annual interest payments on the debt -- real dollars or percent of total? What then will the "finance charge" component of the annual budget rise to, as a percentage of the total budget? When did Republicans become such unabashed Keynesians: deficit financing? I thought their revered prophet was Fred Hayek?? Thanks much. HLB
Steven Pearlstein: Let's just do some back of the envelope calculations. During the first Bush term, the debt will have increased by about a trillion dollars when all is said and done. The annual interest cost varies and it must be said that if there was any time to borrow a trillion, this would certainly be it. At an average of 4 percent (10 year treasuries are now 3.3 I think), that's $40 billion a year in interest. I think that's 2 percent of total federal spending but a much greater percentage of the discretionary spending that people fight over all year long.
Alexandria, Va.: Fine column on Friedman. But what about Snow? How do you rate his first months on the job as Treasury secretary?
Steven Pearlstein: Thanks. Snow also gets mixed grades, I suspect. Good at salesmanship role on Capitol Hill, bad with the public because he just recites the message of the day. He's been slow to fill positions and, in fact, has failed to retain a couple of good people. I don't know what to say about this dollar screw up because its not clear whose fault it is, although my suspicion is that it was not his. He's got a great talent in Peter Fisher as undersecretary and it will be interesting to see if he can keep him intimately involved in things.
Silver Spring, Md.: You mention that Friedman's getting low grades from Capitol Hill. Does that cut across both chambers and parties? What do the congressional Republicans want from this White House in terms of economic policy?
Steven Pearlstein: I should say that the reports from Capitol Hill aren't all negative, just that he has not emerged as the guy to go to make a deal and make it stick. I spoke with a few congressmen and senators and they said he had been good about coming up and talking with them but they acknowledged he still didn't seem to be empowered, as it were. And of course the way the tax bill was handled on the Hill, with the competing versions in the House and Senate, got pretty dicey and had to be put on track by the President at the end who essentially made it a political mandate. The final bill was more the Bill Thomas bill than the White House bill, which may have been a good thing actually. But it raises the question of why Thomas wasn't brought in on the process earlier. That IS a Friedman thing.
Dayton, Ohio: This Administration has already passed three tax cuts that disproportionately favor the wealthy. Rep. DeLay is already talking about the next wave of cuts. All this while running a $500b deficit this year and increasing the National Debt another trillion. Are the Republicans on pace to achieve their "Holy Grail" - the elimination of social services? Surely there will be tax cut after tax cut proposed and passed by this current Administration and Congress. Are they setting the stage to say, 'sorry, the money just isn't there anymore for social security, etc'?
And if not, where is the money going to come from for the baby boomers?
Steven Pearlstein: All good questions. I understand the starve the beast conspiracy theory and I'm sure there is some truth to it. But I don't think it explains the real motivations of the President and most Republicans. Frankly, I don't think they are really thinking hard about the consequences of what they are doing. Mostly they don't like government regulation and that is what they'd like to cut out. But I think you are wrong to ascribe animus toward the poor and social programs as the real motivating factor. They're not that mean spirited.
Bethesda, Md.: Why is Goldman Sachs the ulimate political insider firm? First there was Rubin, now Sen. Corzine and Friedman.
Steven Pearlstein: Because it's a partnership, its very very good at what it does and the partners get very rich. If I were an investment banker, that's where I'd want to work.
Fairfax, Virginia: The Bush tax cut has little public support? So I guess most people won't be cashing the checks...
Steven Pearlstein: I assume you're being facetious. Obviously everyone wants a tax cut but the polls are pretty clear that people would rather have had services or a lower budget deficit than the tax cut. Those are the facts.
Washington, DC: White House's have always bent over backwards to cater to the economic power of Wall Street. How much has the tax cut benefited or hurt the Bush administration among big chiefs in Manhattan?
Steven Pearlstein: Helping Wall Street wasn't the aim (lots of Wall Streeters are Democrats and New York isn't a Republican state in most presidential elections). Nor do I ascribe to the theory that the Bushies just want to give money to their rich friends. Democrats continually lose elections because they misconstrue the Republican motive and misunderstand the appeal of the Republican message. And this is a good example.
Washington, DC: I believe the economy is finally getting better. I am getting cold calls from employers and recruiters about my resume. I have a job and have not put my resume 'out there' in about 8-10 months.
Steven Pearlstein: I believe you are right, although remember, you live in Washington, D.C. My impression is that economies of Atlanta, Boston, San Franciso and Seattle are still pretty weak.
Washington, DC: Your column puts a lot of focus on Mr. Friedman, when he's just one of several powerful economic policymakers in this city. Isn't it a bit unfair to put so much onus on this one person? Doesn't he share the load with Snow, Greenspan, Congress, etc.?
Steven Pearlstein: Yes, it is a bit unfair. And most of all, he's not the President, who does make the broad stroke decisions. But I do believe his is in a position, and he has the intelligence, to be able to keep policy on track and within the hash marks of good economics. On the dollar, he didn't keep it on track. On taxes, he didn't deliver good economics. On Medicare, he allowed a proposal to go out without consulting Congress which will now do its own thing. And on the president's investment incentives, included in the budget, with its proposal for consolidate tax-free saving accounts, they have been completely forgotten. Obviously, these are group failures, but its his job to do the quality control so failures don't happen, in my opinion.
Arlington, VA: So are Snow and Friedman generally not getting permission to run the journalist gauntlet because they're still not entirely ready, or because they haven't been molded into Karl Rove yes-men yet? I heard Snow, I think, on Meet the Press, and he seemed to get a nice going-over from Russert, but then again, everyone does. Otherwise, he hasn't been around in the public spotlight much, has he?
Steven Pearlstein: Generally speaking, Friedman has not yet taken on the role as a regular, reliable contact for the key economic policy reporters. The problem is that, in the Bush administration, nobody else has either because they really dont want that role filled. They pronounce and expect us to print, which doesn't really work. The interaction isn't candid enough to be useful, so reporters don't really even try to do it now unless the story calls for some kind of official comment. Snow has mastered the art of staying on message, so he's out there with Russert and others. But I'd be surprised if you ever learn anything from listening to him in such fora.
Arlington, Va.: Why do we never see taxes framed as follows: what percent of their income does any given group (slice it however you choose) on average -actually pay---i.e. after all exemptions and deductions are factored in? Not in terms of percentage of all federal taxes, or in terms of the marginal tax rates, but the actual percent of income paid by, say, people making less than $100,00 or more than $300,000?
Steven Pearlstein: Its widely available, actually. It would show that the percentage goes up as the income goes up. We have a quite progressive tax and transfer system in this country, despite all the handwringing by liberals. They want you to think its not so it can be made more progressive, but they also can't quite come and say that they think it a fundamental function of the government to take from the rich and give to the poor and equalize incomes. One reason they can't is because they won't say how equal, or when they would be satisfied that it was equal enough.
Manassas, VA: Good morning:
I make $12/hr, have no medical benefits, am the sole provider in my family (wife and two children). I made too little last year to qualify for the child tax credit refund due this year to many other taxpayers who made more than I did.
However, although I could sure use the extra $800 from the child tax credit, I don't begrudge the government for not doing so. After all, it's the middle class and the rich who pay most taxes, and I believe that it's only fair that they receive as much as their money back. I don't believe it's unfair that I won't receive the child tax credit refund because I already received a sizable amount from my earned income credit refund.
Therefore, I completely support the tax cut (although I'm against the increased spending). Am I just being too naive and/or are they other people "poor" like me who have the same mentality concerning the tax cuts?
Steven Pearlstein: Glad you wrote in. That viewpoint needs to be heard.
San Francisco, Calif.: Tom DeLay says none of those excluded from the child credit in the lower bracket pay taxes. Is this true?
Steven Pearlstein: That's true for many people in the lower brackets. They don't pay income taxes, although they do pay Social Security and Medicare taxes.
Baltimore: Today's Post reports that the tax "cut" is going to add to the overall tax burden on the middle class. If so, was that a miscalculation by the Republicans, or is this just shifting the tax burden back to where it should be?
Steven Pearlstein: This is complicated stuff and it depends on how you frame the question. The way I like to frame it is to say that the Bush INCOME tax cuts leave the tax code as progressive as it was before, or slightly more so at the lower levels. Where the Bush cuts get regressive is the ESTATE tax, which obviously only affects people at the top. It is true, however, that this last tax cut, because it lowers capital gains and dividend taxes significantly, wipes out some of the progressive effects of the reductions in marginal rates. I doubt the package will have the political impact you suggest because the middle class will still see its tax bill go down and that's all most people care about. They don't go around worrying about distribution charts.
McLean, VA: So, Steve, how long do you think Sec Treas Snow will last?
Don't really expect you to answer that now, but want to say that you are doing a great job of reporting and writing -- keep up the good work.
Steven Pearlstein: I think Snow will last for quite a long time. And thanks for the mash note.
Bradenton, Florida: One thing I notice in the Bush tax plans is that a higher percentage of the total tax take is expected to come from income earned by doing actual, day-to-day "paycheck" work. Isn't this counterproductive in the long run? Wouldn't we better off using tax policy to encourage work than using it to encourage estate-building?
Steven Pearlstein: I have to tell you that the weight of economic evidence is that we should move to a consumption tax, which means we tax income from work or investment when it is spent (on anything). That kind of tax system generates the most economic growth and the least distortion to the economy. The way to do that is either to go to a European style value added tax system, a national sales tax, or keep the current income tax but only tax money each year that is spent from paychecks, borrowed or taken out of what are essentially tax-free savings and investment accounts. This latter idea has wide popularity among policy makers. The only problem is that it is very expensive and complicated and subject to games-playing in the transition from the current system. And that is why it hasn't been done.
Washington, DC: What do you make of Greenspan's comments yesterday? Seems the media reported it both ways: he's optimistic about growth, but he's not certain it's there yet.
Steven Pearlstein: I think my colleague John Berry got it exactly right (and as he'll be the first to tell you, we don't always agree). Greenspan is worried enough that growth will be slow for a sustained period that he will cut rates again. That's the news.
Washington, DC: There was some speculation that Friedman may have had a role in the decision to relocate the Council of Economic Advisers to a remote building on 18th Street (which conveniently happened when the CEA chair was vacant) in order to minimize any challenge to his influence over economic policy. Do you know anything about this? (Recall that Glenn Hubbard often had more influence than Friedman's predecessor.)
Steven Pearlstein: This is a wonderful parlor game people play about the offices and relative influence. Our version Kremlinology. I doubt they were moved out as a conscious effort to downgrade their status. They weren't in and out of the Oval Office anyway. And where there are deputies and interagency meetings, where the real work is done, they'll be there. End of story.
Portland, OR: I'm always bothered by the GOP promotion of the small business owner, business community etc. as if the business and their owners is a greater value to society the worker. I even hear Republicans say we ought to be "grateful" to business for making jobs so we can work.
I'm a Republican and we workers get the job done. Our relationship with the business community is one of mutual benefit and I don't think I owe them anything. I'm glad for the work and I assume the business is glad for the good worker. They profit from my labor or else they wouldn't offer me the labor. Even the tax breaks lean toward more toward the business owner (in my opinion) as if putting in a honest days work and looking out for your boss--the business owner--isn't as worthy as being the business owner.
That's my view from the peanut gallary. I'd be interested in your thoughts.
Steven Pearlstein: Wonderful comment really. Before I came to the Post, I was an editor at Inc. magazine, which is targeted to smaller, growing businesses and I was something of a skunk at the lawn party when I would argue that government shouldn't be in the business of promoting small business. If they really do create all the jobs (which they don't), then why do they need any help? I think it is true that small businesses don't get the respect they deserve. Ditto employees. We spend too much time lionizing top executives. But that's another story.
Pentagon City: What happens to the doom and gloom deficit talk if the economy sizzles more than expected in the future? Wouldn't we grow our way out of fiscal problems as we did during the Clinton years?
Steven Pearlstein: Always possible, of course. But if the economy goes back to its historically normal patterns, there will remain what the economists call a "structural deficit" at current rates of spending and taxing.
Atlanta: It is NOT true that the estate tax ONLY affects those at the top. Plenty of people have to pay it, it's not that much money for someone to have at the end of their life, even if they have been struggling each and every year - just having a house and a couple of accounts will get you there - my mom was far from rich and we had to pay it.
Steven Pearlstein: Fair point, although it is mostly true that high income people pay it. Sometimes, we are cavalier in exchanging rich (which is a measure of wealth) and high income (which is a measure of how much you earned last year). People who are asset rich and but not income rich are lower bracket people who, indeed, pay the inheritance tax. But for analytical purposes, I can tell you the incidence of the estate tax is highly, highly concentrated at the top 20 percent of income class.
New York, New York: At the recent G-8 summit, deflation seems to have been tlaked about but little has been said in the press about any corrinated action that the G-8 will take to fight it. Will there be any action to fight global deflation which seems to be the economic fear of the day?
Steven Pearlstein: They ducked the issue. Thanks for pointing that out.
boaton, ma: This is more of a politics question than an economics one, but as an old Boston Observer subscriber, I have confidence in your versatility. In terms of a politcal pitch, woudl it make sense for the Democrats to unify behind an approach of "if we are going to cut taxes, the cuts should be credits rather than deductions." This would address the "fairness" issue and skew the reductions more towards the lower and middle class constutencies than the Bush "dumbell" of balancing disproportionate breaks for the the wealthy with trimming at the bottom.
Steven Pearlstein: I always am thrilled to hear from a former Boston Observer subscriber. That is a magazine I started back in 1982 and folded four years later because there weren't enough of you. Anyway, the right Democrat tack right now is to just say no to all tax cuts for anyone, in favor of balancing the budget, saving social security and medicare and fully funding things like education and assistance to the disabled. We've cut taxes to the ponit now where further tax cuts have much less impact on economic growth. Perhaps the code should be overhauled and reformed, with some taxes raised and others lower, some added and other eliminated, and loopholes closed. But overall, this is no time to cut taxes. If anything, it is time to raise them a bit.
Atlanta: It seems that no one is mentioning the real issue - the people who are so-called 'rich' are the ones who pay the taxes, so if there's a tax CUT then THEY get to keep THEIR money. What we REALLY should also be cutting is GOVERNMENT SPENDING. Why is a tax cut such a bad idea? We've seen how poorly the government does at spending our money, why give it to them? Sure there are some good programs, but overall, people should spend their own money - people still contribute to charity and will do so more if they have more to do it with. Why is it such a bad idea? I really don't understand.
Steven Pearlstein: Its a bad idea because the government doesn't spend all its money badly and some of the things the government does neither private markets nor charity can do, or so as well. Let me ask you this: do you think it very likely that the government is very bad at spending money on social programs and education and mass transit but somehow every good at spending money for defense and homeland security? I doubt it. They are probably equally competent and incompetent across the board.
Alexandria, Va.: I've often heard groups argue that the Social Security withholding rate should be lowered to put more money in the pockets of low-income folks. What do you think of that argument?
Steven Pearlstein: I'm against that, actually. It would be a way to get money into people's pockets quickly. But I think it important that people understand the link between Medicare services and their own contributions to it. With the program being underfunded, this is no time to cut payroll taxes.
Steven Pearlstein: Thanks folks. See you next week. Keep reading.
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