Ban the Bonds

SYNOPSIS: War bonds aren't financing a war, only tax cuts for the wealthy

As bad ideas go, the proposal to create a new class of war bonds hardly seems worth mentioning. After all, it doesn't compare to the tax-cut package the House will probably pass today, which sets new standards for cynicism. So why pick on a proposal that, while generally acknowledged to be silly, also seems harmless?

Because it isn't really harmless. When the patriotic fervor abates a bit which it will; even the most justified war is inevitably followed by disillusionment the war-bonds proposal will probably be regarded as a prime example of post-Sept. 11 hypocrisy, of politicians' belief that as long as they vigorously wave the flag nobody will notice that they are busy catering to special interests.

A little background here. The original war bonds were, of course, introduced during World War II, when the nation was mobilized for total war. Everyone was called upon to sacrifice; not only were consumer goods rationed, but taxes were sharply increased. War bonds made sense in this context: they were a substitute for consumer spending, releasing resources for a war effort that absorbed almost 40 percent of G.D.P.

Our current situation could hardly be more different. Even though the terrorist attack has made an increase in the defense budget inevitable, we're talking about a fraction of a percent of G.D.P. And because the economy is depressed, we want consumers to spend more, not less. So if war bonds are made available, they will be a substitute for . . . what? At best, they will offer the same return as ordinary government bonds, but carry different decorations. So people who buy war bonds will be doing no more for their country than people who choose postage stamps with a patriotic theme.

At worst, war bonds will offer a lower return than ordinary bonds. And if some people buy them nonetheless, what will they finance?

Here's where that tax bill enters the picture. The remarkable thing about the "stimulus" package that passed the Ways and Means Committee on a straight party-line vote is that it barely even pretends to serve its ostensible function. It consists largely of permanent tax cuts, not the temporary cuts that you would expect in a stimulus package. It systematically gives money to those least likely to spend it that is, to high-income taxpayers, and above all to large corporations.

Some of the provisions in the House bill are simply mind-boggling. For example, there is a large retroactive tax cut for corporations that would lead to immediate rebates of hundreds of millions of dollars to each of a select list of giant companies, many of them in the energy industry (though the $1.4 billion check to I.B.M. would top the list).

On the other hand, there is almost nothing in the bill for people who might actually need more money. The extra unemployment benefits, in particular, are far less generous than those offered in the last recession, when the elder Bush was president.

The bill, in short, looks as if it was written by corporate lobbyists and it probably was. Even Treasury Secretary Paul O'Neill was evidently embarrassed by the bill, dismissing its more outlandish components as "show business" designed to impress campaign donors.

But his remark was nave. Those lobbyists are serious men, who are paid by their employers to deliver results, not gestures; they wouldn't have put those provisions in unless they thought they had enough power to get them enacted. And sure enough, the White House soon contradicted Mr. O'Neill; the president, declared Ari Fleischer, was "very pleased" with the House bill.

Which brings us back to those war bonds. The government not only isn't calling for shared sacrifice; it is "very pleased" with a proposal to give billions in handouts to corporations. And in that case, what is someone who buys a war bond really helping to finance? Put it this way: If the House has its way, the government will give far more in tax breaks to corporations over the next year than it will spend fighting terrorism. Yet somehow one suspects that people would not rush to buy "corporate tax-cut bonds."

In an ideal world Congress and the White House would stand up to the special interests, and give us no reason to be cynical. Oh, never mind. But at least let's not add insult to injury. Ban those bonds.

Originally published in The New York Times, 10.24.01