Dow Jones Business News
Top Business Group Urges Bush To Scrap His Tax-Cut Plan
Wednesday March 5, 12:17 pm ET
By Joseph Rebello, Of DOW JONES NEWSWIRES
WASHINGTON -(Dow Jones)- An influential group of U.S. corporate leaders urged President George W. Bush Wednesday to scrap his $726 billion tax-cut proposal in the interest of long-term economic prosperity, saying the budget deficits it would create would be akin to "arsenic poisoning" for the economy.
The Committee for Economic Development, dominated by the chief executives of some of the country's biggest corporations, said in a report that Bush's proposal would increase the cumulative deficit over the next decade by $2.7 trillion and leave the country with $500 billion annual deficits after 10 years. Those projections don't include the cost of going to war with Iraq and rebuilding it afterward.
That may not hurt the economy much in the short run.
"Failure to save is not necessarily a harbinger of economic collapse," the report said. "Rather it foreshadows a gradual and steady undermining of our well-being, more like arsenic poisoning or termites in the wood work." Unless Congress acts to reverse the growth of budget deficits, it said, the U.S. economy would weaken over the next three decades and start shrinking persistently in the 2040s.
"It is extremely unlikely that the long-term budget problem can be solved without additional revenues," the CED said. "We therefore urge the Administration and the Congress to forgo at this time any additional tax reductions," including Bush's proposal to make permanent the tax cuts Congress enacted in 2001. Under current law, those cuts would be rescinded after 2010.
The Bush administration has asserted that taxes should be cut not only to give the now-wobbly economy a boost in the short run but also to ensure long-term prosperity. "The economy can grow so much faster," Treasury Secretary John Snow said Wednesday on ABC News. "The best way to deal with the deficit is to have rising government revenues from growth in the economy."
But the CED, which has issued regular warnings since 1947 about the dangers of budget deficits, attacked both dimensions of that reasoning. The economy, it said, is likely to gain steam this year unless war with Iraq causes it unexpected harm. "Economic activity has now been increasing gradually for about one year," the group said. "CED believes that a more expansive fiscal policy at present would be unnecessary and imprudent."
Moreover, it said, economic growth alone won't wipe out looming budget deficits. Given the government's obligations under Social Security and Medicare to pay for the retirement of the baby-boom generation, U.S. workers would have to become 50% more productive to generate the kind of economic growth that would be needed to wipe out budget deficits by 2050. "We know of no reputable analysis finding that tax cuts would raise long-term productivity growth by anything close to 50%," the CED said.
By creating the prospect of ever-larger budget deficits in the next few decades, the tax cuts Congress is contemplating actually diminish the economy's capacity for faster growth, the group said. Larger deficits would cause interest rates to rise and restrain private investment, it said. If Congress works to balance the federal budget, the country could expect average annual economic growth of 1.8% in the 2040s. If it does nothing, the economy would shrink at an average annual rate of nearly 1%.
"Higher growth will not appear like manna from heaven," the CED said. It will require "sacrifice and some very difficult choices" about how to keep the budget balanced while paying for a variety of compelling interests ranging from national security to education, health and the needs of an increasingly elderly population.
-By Joseph Rebello, Dow Jones Newswires; 202-862-9279; Joseph.Rebello@dowjones.com