THE HOSTAGE ECONOMY

SYNOPSIS: Bush is caught between short and long term cuts in the government.

George W. Bush's tax cut plan has never been distinctive for its content, which is standard-issue conservatism big tax cuts for the rich, a few crumbs for middle-class families with children the right age, nothing for the poor. What is distinctive is the way the plan has been sold. I can't think of any precedent in the history of American economic policy. Has any previous administration been quite this shameless about misrepresenting the actual content of its own economic plan?

But it is starting to look as if maybe, just maybe, the cynicism of the sales effort is about to backfire. Mr. Bush now runs some risk of being hoist by his own pet argument.

The only way to understand the structure of the Bush plan is to see it as the creation of someone who believes in the trickle-down theory: make the rich richer, and a rising tide will lift all boats. Or more accurately, the plan can be seen as a device intended to reassure those who do believe in that theory that Mr. Bush is not his father. And it is no secret that the plan was originally concocted to ward off a feared challenge from Steve Forbes.

Now Mr. Bush could have tried to sell his plan in terms of the ideology that the plan actually reflects. But he has never done so. Instead, he has engaged in an elaborate disinformation campaign. Part of this effort involves an attempt to deny the plain fact that the tax cuts will mainly go to the very, very well off. But the campaign's most striking feature has been the attempt to sell the tax cut as a short-run stimulus to spending as the answer to an economic slowdown that Mr. Bush has done his best to play up, and which his doomsday rhetoric may have worsened.

What's ironic is that the timing of the Bush tax plan makes it just about completely useless as a short-run stimulus package. In order to keep the headline numbers down, the plan delays the really big tax cuts far into the future, putting hardly any money into the hands of consumers this year and not much next year. And recently administration officials have begun to admit that if they are really serious about doing something for the economy now, they need to add an immediate tax cut onto the plan.

But then the question arises: why not adopt the add-on and forget about the original plan? Or better yet, why not implement one of the short-run stimulus plans proposed by Democratic senators, and discuss those huge long-term tax cuts for the rich at our leisure?

Of these alternatives, I'd vote for Joe Lieberman's suggestion that the Treasury simply send every taxpayer a $300 check. Not that I really think it's necessary: if I had to choose, I'd take another percentage point off the Fed funds rate any day. (Please, Mr. Greenspan?) But hey, why not? Mr. Lieberman's proposal (or the slightly different proposals being offered by other Democrats) would put money quickly into the hands of families that need it and would spend it, without busting the budget. And these proposals would also remove any sense of urgency about rushing through big tax cuts for people with seven-digit incomes.

What's going to happen, of course, is that Mr. Bush will try to take the economy hostage: he will insist that we can't have an immediate tax cut to provide economic stimulus unless we accept his whole plan. There's no logical reason why: Congress can easily give each ordinary family a few hundred dollars now without agreeing to give individuals with million-dollar incomes $50,000 tax breaks every year after 2006. But Mr. Bush and his allies will try to prevent Congress from taking any helpful short-run actions unless he gets it all and will blame moderates for the delay.

The good news is that there are two ways this attempt at hostage- taking can fail. Public opinion may force Mr. Bush to stop playing games; or the Fed may do what is needed to turn the economy around, and the whole strategy of using a slowdown to bully Congress into passing the tax cut will miss its window of opportunity.

In either case, Mr. Bush would then be forced to sell his plan on its actual merits. And his cynical sales tactics show that he and his advisers have long since concluded that those actual merits, whatever they are, just won't cut it.

Originally published in The New York Times, 3.28.01