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Tax Cuts or Tax Reform? -- 9/4/00
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THE SECOND ROUND OF THE BUDGET SAGA -- 4/10/01
POWER VS. POWER -- 5/17/01


Tax Cuts or Tax Reform?

By Victor J. Serge


By the inability of our Republican leaders to crunch the numbers, we, the commoners, are necessitated today to consider the topic of efficiency of "our" federal bureaucracy with greater specifics. If the federal bureaucracy is really "our," then, we have to consider why our political bureaucrats prefer burden us with unnecessary taxes while subsidizing our economic corporate bureaucrats.

In folklore, the “necessary” business subsidies, are often cited as the "corporate welfare," however, in bureaucratic jargon it is usually referred as the "financial assistance" to businesses. The political bureaucrats provide financial assistance to the economic corporate bureaucrats in a variety of ways, which derive from a variety of goals. Some of these goals stated openly in a party platform and, then, materialized in the federal budget. So, these goals and re-distributed public funds could be evaluated and, as such, are transparent for the commoners. However, the vast bulk of such corporate subsidies is provided through hidden special "tax cuts, tax expenditures, tax abatements, or tax preferences" for businessmen who engage in activities that the political bureaucrats "pre-approved" surreptitiously.

In this fiscal year, the total cost of federal tax cuts or corporate welfare is expected to be about $195 billion. It will be larger than direct-spending business subsidies that you can see in the budgetary releases. That is why the bureaucrats of Congressional Budget Office (CBO) use rather a narrow definition of business tax cuts, leaving out many of those that subsidize investors of those industries, the products and services of which are preferable from the point of view of the political bureaucrats. Therefore, the most recent figures published by the bureaucrats of Joint Committee on Taxation (JCT), the fiscal 2000 total of business tax cuts is only $80 billion. However, if you expand their accounting system and include into it most tax cuts on capital gains, some tax-exempt bonds, the exemption for life-insurance inside buildup, and the investment tax cuts, then, the total sum comes to about $195 billion, which probably is an under-estimation because there is no a transparent way to count indirect subsidies to the multi-national corporations.

Table 1

Subsidies to the Corporate Bureaucrats in fiscal year 2000, in billion dollars

Tax cut on gains off capital (except homes)

73.9

Tax cut via accelerated depreciation of capital

36.9

Tax cut on insurance of capital and products

29.9

Tax cut to multi-national corporations - by the lowest estimate

13.5

Tax cut via tax-free private bonds, excluding the $16.5 billion publicly trading

9.0

Tax cut via business meals & entertainment

6.6

Tax cut for research and development (R&D)

4.0

Tax cut to developers of low-income housing

4.0

Tax cut to oil-gas and energy corporations

3.2

Tax cut to timber, mineral, and agricultural corporations

1.3

Tax cut to financial corporations (non-insurance)

0.9

Tax cut for installment sales

0.9

Tax cut for Employee Stock Ownership Plan (ESOP)

0.8

Tax cut for empowerment zones

0.8

Tax cut for other businesses & investments

9.2

Total

195

Source: Joint Committee on Taxation, Dec. 1998; Treasury Department (figure for capital gains); and Citizens for Tax Justice (figure for business meals & entertainment).


The total, shown above, includes an estimate for write-offs of the cost of meals and entertainment for the corporate bureaucrats, which the political bureaucrats of the CBO have preferred to exclude from their accounting system. Also they excluded tax cuts for retirement savings (like those $20 mil. of Dick Cheney) from the investment subsidies that shown above.

If you know that the federal budget is about $2 trillion, then, taking into a premise that the tax cuts for the corporate bureaucrats would not exist, you can easily calculate that personal and corporate tax rates are about 10 percent higher than they should be. From this calculation and from the present statutory tax rates would follow that the federal bureaucrats could provide far more services for the commoners than they presently do. Therefore, the middle class should think twice about whom "our" bureaucrats care or who really benefits from those tax cuts?

All indirect tax cuts have common defects. Some of them, such as the tax cuts to the corporate bureaucrats for accelerated depreciation of their capital and as business meal deductions, hurt the commoners and laborers. Some of them, such as the tax cuts to the multinational corporate bureaucrats hurt the commoner, laborers, and even some bureaucrats. As you can see from the Table1, the second largest tax loop-hole for the corporate bureaucrats is the tax cut through accelerated depreciation of their capital.

The federal bureaucrats created such rules of a game to the corporate bureaucrats for accelerated depreciation of their capital that allows the latter to write off their purchases of machinery, equipment and buildings for tax purposes faster than the assets actually wear out. Special indirect tax cuts for accelerated depreciation of capital were fixed in the tax code in the sixties, and were enlarged in various ways thereafter. The process reached its apogee in 1981 when President Reagan's tax cut act included the biggest expansion of depreciation write-offs.

By 1983, after the tax-havens were pulled to America, half of its largest and wealthiest corporations had paid no federal income tax in at least one of the years the depreciation changes had been made. Surveys showed that more than 60 well-known American companies paid nothing over three-year period, despite $50 billion in pretax profits. Until the 1986 Tax Reform, the bureaucrats of Dupont De Nemours (DD) had reported pretax profits $2.6 billion and had got $132 million annually in tax rebates from the federal bureaucrats. The bureaucrats of General Electric (GE) had reported $6.5 billion in pretax profits and had got $283 million annually in tax rebates from the federal bureaucrats. Little if any of that "rebated" money can be attributed as award for innovations in the defensive systems that help to win the Cold War.

In response to the disappointing economic results of the 1981 corporate tax incentives and worsening the standard of life of the middle and lower classes, President Reagan changed his policy for the best and went along with the Democratic Congress. Thus, emerged the loop-hole-closing Tax Reform Act of 1986, which greatly scaled back depreciation and other indirect tax cuts for the corporate bureaucrats. The change of rules of the game made fiscally responsible most of the former non-payers of the corporate taxes.

Despite the predictions of the conservative gurus that the enforcement of taxing rules for the corporate bureaucrats would lead to a stagnation, investments have bloomed and economy flourished until the 1989 oil crisis.

The middle-class economists have been long complaining that the accelerated depreciation of capital often skews the investment decisions of corporate bureaucrats away from what makes the common sense. That is why the corporate bureaucrats have directed investments into the tax-sheltering zones and favored short-term tax-free investments over long-term direct-tax investments. In 1981, the corporate bureaucrats had their largest tax cut ever and their investments immediately went down the tubes, because the sudden riches prefer to spend the gift of heavens for lavish and obscene life-style. In 1986, they had their largest tax increase and their investments went through the roof.

As the congressional bureaucrats noted on pages 145-46 of the Tax Reform Act of 1986, "Proponents of massive tax benefits for depreciable property have theorized that these benefits would stimulate investment in such property, which in turn would pull the entire economy into more rapid growth. The committee perceives that nothing of this kind has happened."

Despite its advances, the 1986 Tax Reform Act did not eradicate the indirect tax-cut loop-holes for the corporate bureaucrats. Even today, the latter are allowed to write off the cost of their machinery and equipment considerably faster than it actually wears out. Subsidies to the corporate bureaucrats for accelerated depreciation of their capital estimated by the JCT will cost to the commoners and laborers about $37 billion in this fiscal year alone, because the current tax accounting has inbuilt defects, which show "negative" tax rates when equipment is purchased with borrowed money, thus, making such investments more profitable after tax than before tax. It is well-known to the tax-collectors fact that the combination of debt-financing and accelerated depreciation typically shows as negative tax rates. As a result of those accounting defects, the tax loop-hole for the corporate bureaucrats' buying and selling of excess tax-cuts through equipment "leasing" deals have remained wide-opened by those political bureaucrats who prefer to serve to themselves, not to the people.

Indeed, leasing tax-loop-holes were made larger, first, by the Democratic legislators in 1993, and then, by the Republican legislators in 1997. The 1993 and 1997 legislative acts substantially gutted the 1986 Tax Reform that had curbed the excesses of the indirect tax-cuts.

In 1993-94, the corporate bureaucrats of American Home Products paid only a 15.6% out of 35% federal tax rate, although they had $4.2 billion in domestic profits. In 1995, the corporate bureaucrats of Eastman Kodak (EK) paid only 17.3% out of 35% statutory corporate federal tax rate, because they've got $124 million as tax subsidies for accelerated depreciation of their capital. In 1995-96, the corporate bureaucrats of General Motors (GM) received tax "refunds" totaling almost $1.4 billion dollars despite their domestic profits of $5.2 billion.

The Republican legislators' "Contract With America" originally included a $30-billion-dollar a year super-accelerated depreciation plan promoted by the present-day Budget Committee Chairman Kasich (Republican of Ohio) that would allow the corporate bureaucrats write off more than they actually spent buying new equipment. An essentially similar widening of tax-loop-holes through the write-offs of the accelerated depreciation of capital is a key feature of the "flat tax" proposed by Mr. Forbes.

The bureaucrats of multi-national corporations, whether American- or foreign-owned, are supposed to pay taxes on their profits that were produced by the American commoners and laborers. Moreover, the American corporate bureaucrats are not supposed to gain tax advantages from moving off-shore their operations or investments, to the so-called low-tax havens. But the federal tax laws have been recently altered in such a manner that the fat cats can become fatter and the common folks have to tighten their belts.

As the data, provided by the federal bureaucrats of the Internal Revenue Service (IRS),  shows that the bureaucrats of foreign-owned corporations, who is doing business in the United States, usually pay far less income taxes than do the bureaucrats of purely American corporations with comparable sales and assets. According to the 1999 analysis of the federal bureaucrats of General Accounting Office (GAO), the bureaucrats of the 15,363 large American companies paid an average of $8.1 million, while the bureaucrats of the 2,767 foreign-controlled corporations paid an average of only $4.2 million in federal income taxes in 1995. Such disparity have been consistent even though the average amount of profits reported by the bureaucrats of foreign-controlled companies was actually slightly larger than the amount reported by the bureaucrats of the American-owned corporations. Those tax loop-holes that the bureaucrats of foreign-owned corporations used to use have provided incentives for the bureaucrats of the American-owned companies to move their plants off-shores, where they can find the cheap laborers and low "tax-havens".

The problems in tax-accounting of profits of the bureaucrats of multi-national corporations derive mainly from the complexities of the federal tax code, created by those "our" legislators who prioritize their own interest above ours, and who carve the tax code in such a manner as trying to determine how much of the profits of the international corporate bureaucrats were produced by their capital on the American soil, as if it is not the American commoners and laborers who activate that capital and who actually produce those profits. Going after the capital, not after its owner, produces that design-flaw in the tax-accounting system of our political bureaucrats that then necessitates the bureaucrats of IRS to scrutinize every movement of goods and services between a multi-national company's domestic and foreign operations, and then attempt to assess a "fair," "arm's length transfer price" that was hypothetically assigned to such a kind of a transaction. This kind of bureaucratic mambo-jumbo is naturally indigestible for the commoners and allows the selfish political bureaucrats to continue "to fish in the murky waters".

The corporate bureaucrats have a huge incentive to pretend that it is their capital on the American soil activates itself and produces profits, not the American commoners and laborers. Thus, they would minimizing their U.S. taxable income if they could show on paper that their capital here, in America, was as small as possible. In other words, the international corporate bureaucrats try to depreciate their capital here by moving it on paper off-shore and to increase their deductible expenses for hiring the American commoners and laborers. In their 1992 report, the bureaucrats of CBO showed that "increasingly aggressive transfer pricing by... multinational corporations" may be one source of the shortage of corporate tax payments in recent years compared to what was predicted after the 1986 Tax Reform.

Variants on the transfer-pricing tax loop-hole, so-called source-rule, and statutory misallocation of certain kinds of expenses expand the opportunities of the international corporate bureaucrats in tax-evading. Thus, in their 1987 annual report to their stockholders, the bureaucrats of International Business Machines (IBM) said that a third of their world-wide profits were produced on American soil. However, in their federal tax return form, the bureaucrats of IBM treated so much of their  research and development (R&D) expenses as American-related that they reported almost no profits off the American commoners and laborers, despite $25 billion in their American sales that year. As a result, the IBM bureaucrats' federal income taxes for 1987 were wiped out by the federal bureaucrats.

The tax cuts for the international corporate bureaucrats will total about $13.5 billion in this fiscal year, and some congressmen try frantically to enlarge those tax loop-holes through their "transfer pricing" accounting approach. That is why their list-to-do includes items such as indefinite "deferral" of tax on the profits of controlled foreign subsidiaries, misallocation of interest expenses, "source" rule that treats certain kinds of profits off the capital on the American soil as foreign profits, the Puerto Rican "possessions tax credit," and a tax exemption for most income earned by the Americans who work abroad. Although the latter item is treated as a personal income tax-cut, the multinational corporate bureaucrats say that they also benefit from such a tax-cut because it allows them to pay lower salaries to the commoners and lower wages to the laborers. This list under-estimates the total tax subsidies to the multinational corporate bureaucrats, because it does not challenge the flawed approach to taxing any corporate bureaucrat, because it is based on the premise that inanimate capital can be active by itself and can produce profits by itself.

However, there is a better approach to closing the tax loop-holes to the multinational corporate bureaucrats. Thus, Senator Dorgan (Democrat of North Dakota) has suggested to replace the current, complex "transfer pricing" rules with a much simpler approach, by which the federal bureaucrats would tax the profits of the multinational bureaucrats based on their corporation's share in world-wide sales, assets in the United States, and payroll in the United States. Simplicity is a sign of a genius, but "our" political bureaucrats prefer complexity. Only morons would give away to the multinational corporate bureaucrats $20-35 billion annually in order to get some crams into their campaign-chests.

President Clinton pledged major tax reforms to curb the tax-evasion of the multinational corporate bureaucrats in his 1992 campaign, but the Democratic congressmen rejected his timid proposals in 1993. In his 1997 budget, as a tactical gesture, Mr. Clinton proposed only $6.3 billion closure of tax-loop-hole for the multi-national corporate bureaucrats over the 1997-2002 period, but most of those measures were buried by the staunch conservative congressmen, who yet support the indirect subsidies to the corporate bureaucrats' lunches and entertainment, and who are telling us, after all that, that there is no such a thing as a "free lunch". They even attempt to justify the $6.6 billion annual subsidies to the owners of restaurants, resorts and other entertainment businesses.

Yes, folks, there is a provision in the current federal tax code, which legalizes spending on meals and entertainment that bear a "reasonable and proximate relationship to a trade or business" and are "conducive to a business discussion". This provision allows the corporate bureaucrats to exclude the cost of their restaurant and theater checks from their income and to deduct 50% of the cost of those checks from the income tax. The proponents of this kind of tax cuts cannot say that getting pleasure from eating and entertainment is not a personal matter and, as such, should be accounted as a personal income tax, and therefore, ought to be either expanded to the commoners and laborers or repelled to all social classes. Instead, they prefer a misty area of a hypothesis and say to us, "look, if we increase the business meal tax deduction from 50 to 60%, then, it would give a boost to all eateries across the country, create thousands of new jobs, and increase GDP by $2 or 3 billion". However, they would forget to mention that the commoners and laborers already paid $6 or 7 billion to the corporate bureaucrats of those restaurants and amusement parks. 

The basic ideology of the present ruling majority of our society is tamed capitalism, which means that our political bureaucracy should leave most decisions about what to buy to millions of consumers and what to make to thousands of economic bureaucrats. Our theory and practice teach us that the careful balancing of extreme social powers usually benefits the middle class, which buttresses our robust political and economic system.

In accord with the doctrine of tamed capitalism, the political bureaucrats must provide the legal and educational infrastructure of our society. The political bureaucrats must set the rules for commerce, correct them, and oversee their implementation; they must act in the gray area where "free" market is not so free that the majority would be happy about it. In such gray areas as environment and consumer protection, the political bureaucrats should smooth out the rough edges of capitalism to make sure that those who do not succeed are not left too far behind; otherwise, soon, those who fell behind would become the numerical majority and the whole economic-political structure would be broken. It takes substantial energy of the middle class to build such a remarkable economic-political infrastructure that satisfies the majority of us. Therefore, the commoners should make sure that "our" political bureaucracy is really ours, and they should delegate to the new political bureaucrats our common sense not to be wasteful of our resources and not usurping the role of the corporate bureaucrats who can manipulate market-place better.

"Corporate welfare" is an example of where the federal bureaucrats can undermine the corporate bureaucrats' ability to do what the latter do best, by making some of them "better" than the others. Curbing such wasteful interference in the micro-management should be the highest priority of those who want a more efficient federal administration and a strong market management.

Another example of inefficiency of the political bureaucrats might be seen in the latter's attempts to promote the general welfare, by subsidizing wages for the laborers. The federal bureaucrats could accomplish such a goal in three ways. One way is a direct intervention into the market-place, by making a rule that sets a minimum hourly wage that the corporate bureaucrats would require to pay. Another way might be indirect intervention into the realm of economic bureaucrats, through the political bureaucrats of Department of Health and Human Services who would provide wage subsidies to "eligible" workers. Alternatively, a wage subsidy might be administered by the political bureaucrats of Internal Revenue Service, either by reducing income taxes for the laborers, including tax "refunds" for those who owe no income tax, or by offering tax credits to those corporate bureaucrats who would hire a certain percentage of the laborers, grading or de-grading the latter by the color of their skin and gender.

In fact, the political bureaucrats used to use all three ways. They have been setting a minimum wage for the laborers. They have been subsidizing the laborers' low wages by welfare, food stamps, unemployment compensation, et cetera. And they have been providing through the tax code so-called "earned-income tax credit" to low- and moderate-income working families and tax credits to the corporate bureaucrats who have been hiring certain categories of laborers.

However, as you can see from the Table 1, most spending of the political bureaucrats through the tax code is not targeted toward the lower class people. In fact, the lion share of tax cuts tend to reward those who are relatives and contributors of campaigns of the political bureaucrats. Organized corporate bureaucrats have been particularly successful in obtaining tax subsidies -- so much so that the corporate subsidies or "tax expenditures-refunds" currently equal more than 40 percent of their total corporate tax payments.

There are few political bureaucrats who would challenge the notion that the present tax cuts are a form of subsidy to the corporate bureaucrats. They would not contend also that the present tax cuts designed to accomplish some economic or political goal unrelated to equitable tax collection from the members of all social classes, which would promote the majority's happiness. Despite of the general agreement on this matter, the lobbyists for such tax cuts and their enactors often make their own way because the commoners often do not have time to follow through the tax-cut proponents' bureaucratic jargon. That is why the political bureaucrats often called the subsidy to the corporate bureaucrats (who, in their turn, subsidize the political ones) as "tax cuts, tax expenditures, tax abatements, tax preferences, or tax refunds" for businessmen who engage in activities that the politicians "pre-approved" surreptitiously. These hidden subsidies might be very well be the tax expenditures for some of the political bureaucrats, but then again, they are not "our" representatives.

Indeed, these tax-based subsidies to the corporate bureaucrats, the bureaucrats of the Joint Committee on Taxation (in their Estimates of Federal Tax Expenditures for Fiscal Years 1996-2000, p. 2) called as: "Special income tax provisions are referred to as tax expenditures because... Tax expenditures are most similar to those direct spending programs which have no spending limits, and which are available as entitlements."

Describing tax subsidies as entitlements, the bureaucrats of JCT mean that most of those subsidies continue without further review once they are fixed in the tax code.

On the contrary, direct federal spending on roads, environment, and general non-entitlement defensive infrastructure must be approved every year; and therefore, the commoners might see who is really represent their long-lasting interests. The process of direct federal spending goes through a transparent appropriation bill that the legislative bureaucrats in the Congress passed and the executive bureaucrats in the White House acknowledged and signed.

If such a direct spending program turns out to cost more than expected, other programs in the annual budget must be scaled back. However, in the case of indirect tax cuts, if the latter go up, the annual federal budget is considered as unchanged, and the process of curbing wastefulness of the political bureaucracy is much more difficult to discern for the commoners.

Table 2

Cuts of Direct Spending in Domestic Programs Under the Ten Fiscal Year (1999-2009) Budget Plan as a Percentage Share of GDP, approved by Congress in 1999

Community and regional development

–96

Agriculture

–72

General government

–48

Environment and natural resources

–39

Science and space

–38

Crime prevention and other justice activities

–37

Transportation

–30

Veterans benefits and services

–27

Education, training, employment, social services

–15


As you can see from the Tables 1 and 2, the tax entitlements that are hidden from budgetary scrutiny enjoy an advantage over most direct spending programs approved by Congress, the bureaucrats of which have cut most of direct spending and will largely reduce domestic programs as a share of the economy over this decade. On the contrary, they will maintain and even expand the hidden tax subsidies in this decade.

As any scientific analysis, an analysis of possible ways to improve the efficiency of our political bureaucracy should be an organic alloy of qualitative and quantitative measurements that would curb wastefulness of the federal bureaucrats. Such an analysis should also include the tax subsidies for our corporate bureaucrats. Like the direct spending programs, tax subsidies should also be evaluated from the point of view of the middle class folks, because the latter are that glue that holds the extremists of the upper and lower classes together in the United States of America.

A standard for evaluating the tax subsidies for the corporate bureaucrats:

1. Is a subsidy designed to serve the long-lasting interests of the commoners?
2. Are the benefits of that subsidy fairly distributed between the social classes, or are they bias and prejudicial to some?
3. Are the moral and material benefits out-weighing the cost of that subsidy?
4. Is that subsidy actually helping to achieve its goal?

Few if any tax subsidies for the corporate bureaucrats could pass this standard test. However, why do many political bureaucrats excuse tax subsidies to the corporate bureaucrats as "necessary"?

Poorly designed accounting system of tax-based subsidies, from which follows lack of cost control, allows some political bureaucrats "to fish in murky waters" for personal gains. Such lack of cost control leads to the biased distributional results and contributes into the general un-happiness of people. Yet despite these obvious negative qualities of some political bureaucrats, we, the commoners, rarely if ever kick in the ass such opportunists. And I am wondering if the common folks are drugged by a decade of economic boom? Do they become the mental couch potatoes and cannot discern their own long-lasting interests any longer? Are they unconcerned about the impact on them of "their" political bureaucrats' uncontrolled spending of common treasury?

It is extremely important to understand that because of the way the political bureaucrats cook their books, the commoners will rarely if ever have their cake. A direct spending program shows up in the federal budget as a transparent outlay of the incoming revenues and outgoing expenditures. However, an enacted indirect tax cut shows up in the federal budget numbers as a wash. Neither net revenue nor its spending will appear as going up or down. That is why the tax cut is a refined tool of a modern gold-digger.

In the 1994 Republican "Contract with America," "our" congressional bureaucrats promised to cut spending. However, we should be fair to them, they did not specified what kind of spending they would cut. Thereafter, they proposed to increase more than on $100 billion a year in tax-based spending programs through the indirect subsidies. Thus, the history of the "Contract" turned out as a farce; and irony of our history indicative in our inability to select the top quality "our" representatives, who would not mount these huge new tax entitlements that mostly benefit the fat cats and who would not mimic additional spending as tax cuts. Likewise, most of President Clinton's spending programs have been disguised as indirect tax cuts rather than direct spending.

In 1995, in the apogee of his national legislative power, Newt Gingrich (Republican of Georgia) suggested a new tax cut, a new spending program of $25 billion for the poor Americans. A few weeks later, Gingrich withdrew his suggestion to buy every poor a laptop computer in order to materialize his dream of direct democracy when every citizen, through the Internet, would participate in the legislative process. After a thorough evaluation, he realized that technology was not yet there. But why would a man of so strong fiscal convictions even consider such an expensive hand-out? For one simple reason, because Gingrich had not suggested more direct and open spending but, instead, he had proposed a hidden indirect tax cut.

Rather than to mandate the executive bureaucrats of Human Services (HS) to buy those computers to every poor citizen, the checks would be written by the executive bureaucrats of IRS. For your not yet trained eye, it might look the same; but for the legislative bureaucrat's eye it makes a big difference, because a legislative bureaucrat would be held responsible for his direct and open spending program if such a program would fail. However, the hidden tax cuts or tax expenditures allow a legislative bureaucrat to channel the public's anger onto a straw figure of an executive bureaucrat, while ducking his own responsibility.

The hidden "tax expenditures" or tax cuts, implemented by the Republican congressmen through the Internal Revenue Code, will total $1.75 trillion over the next 3 years. However, most spending through the federal tax code is not targeted toward low-income people.  In fact, tax cuts tend to reward those who have most. Many personal income tax subsidies offer much larger benefits to the well-to-do people than to the common folks. For example, a deduction to a top-bracket taxpayer for mortgage interest is 39.6%, but only 15% to those folks whose earnings are about  $40,000 a year.

Table 3

Estimated Direct and Indirect Spending in Domestic Programs Under the Three Fiscal Year (2000-2002) Budget Plan, in billion $$

 

2000

2001

2002

% change in constant $$

% change as share of GDP

Direct Spending

537

548

573

-5.7

-11.0

Indirect Spending

557

582

609

-7.2

-0.02


The indirect tax-based subsidies run on auto-pilot once they are in the tax code, but the direct or so-called discretionary spending on defense, roads, environment, and other non-entitlement programs must be approved by the bureaucrats (and eventually by the people) every year. Under current tax code, in accord with President Clinton's proposal, direct spending is frozen at about $550 billion through the next fiscal year, unadjusted for inflation or population growth, and will go up only with inflation in fiscal 2002.  However, the total cost of indirect tax cuts is expected to rise from $557 billion in fiscal 2000 to $609 billion in fiscal 2002. Thus, while direct and transparent spending must shrink as a share of the economy, tax entitlements will grow by 7% in constant dollars ­ just about keeping pace with the economy. That means an inflation-adjusted reduction in such programs of 6% over that period and a 11% cut as a share of the economy.

We all well know that there in no such a thing as a free lunch; and it is correct for the tax entitlements or subsidies to the corporate bureaucrats. If we, the commoners, would repeal most of current indirect tax cuts to the corporate bureaucrats, for instance, our own income tax rates could be reduced about a fifth, painlessly for us and the laborers. Of course, it would diminish the moral power of the upper class, but they probably would be much better of materially because of the improving productivity of the middle and lower classes. However, such a class trade-off is unlikely in the nearest four years. Therefore, the commoners should channel their energy into the selection process of "their" legislative representatives at the bargaining table. And their litmus test for such a representative should be the latter's will to eliminate or to scale back most of those kinds of tax entitlements and to improve tax fairness between the social classes and individuals.

We, the commoners, must be vigilant to "our" own representatives on behalf of all social classes, because only our vigilance would likely improve economic growth and improve the living standard of all people by curbing wasteful tax-scheming activities of "our" political bureaucrats and thereby increasing productivity and freedom of the "free" market.

Our new tax reform must start from a new covenant with our representatives who must be clear on the issue whether the IRS is the appropriate agency to govern our spending program. We designed our bureaucracy as a fine system of checks and balances, moreover, as a bureaucratic hierarchy with a thorough division of labor between its members. And it seems to me that the expertise of the IRS bureaucrats lies in the sphere of tax collection, not in spending of our treasury. We should insist that "our" legislators separated these two functions between the IRS and Treasury Department. We should not make out of the IRS bureaucrats a jack of all trades and expect that they would do the top quality job for us, as we do not expect from the military bureaucrats to do a good job running the health-care system. If a direct spending program is failing to achieve its goals, we usually hold accountable the bureaucrats of agency who are in charge of that program. However, we cannot be sincere while blaming the IRS bureaucrats if the tax-based programs they oversee prove to be a failure.

By handing the reigns over the spending programs to the IRS bureaucrats, the upper class gained advantage over us, because the IRS bureaucratic oversight for spending programs is usually low, since they devote most of their attention to their main function of collecting taxes. Consequently, the upper class lobbyists can fish "successfully" in the murky waters of this multi-functional organization. However, such a "success" of the fat cats usually turns out to the commoners and laborers as another disaster. And that is a price-tag for the lack of our attention to the efficiency of "our" representatives.

Our representatives must acknowledge that most tax subsidies to the corporate bureaucrats are wasteful for the commoners and laborers. The corporate bureaucrats do not ask advice of the political bureaucrats how they should manage their mills and farms. They ask for subsidies for doing their business, which they already do, and would do it anyway, with or without those subsidies. Some of them get lower subsidies than their competitors, thus, finding themselves unfairly disadvantaged in the market-place. Some corporate bureaucrats who used to use lots of heavy machinery want subsidies for buying those machines. Some corporate bureaucrats who do lots of genetic research want subsidies for the genetic research, because they think that such subsidies will greatly improve their competitive edge in the global market of ideas and products. However, if we will follow them, it will return us to a scholastic question -- what came first, the chicken or the egg, ideas or matter?

To say that all federal subsidies are payments to the corporate bureaucrats for doing nothing is, of course, an exaggeration, but it is a useful exaggeration that stresses the worst effects of the corporate hand-outs, which are bearing a ripple effect in many spheres of our lives, for their cost means that other tax-payers must pay higher taxes or get lower services from the political bureaucrats. If our subsidies to the corporate bureaucrats are lessening our investment in education of our children, then, the majority of us is in trouble. However, if our political bureaucrats would find out that a certain defensive system would potentially spare many of us from death or slavery, we would gladly subsidize the bureaucrats of that industry, which would produce such a defensive system. But we would subsidize it openly, knowingly, deliberately, and effectively.

To anyone who would jump on me, saying that our Military Industrial Complex (MIC) is a secretive organization by its nature and we cannot discuss its innovations openly for a fear to be heard by our potential enemies, I would say that most of our strength derives from our openness and moral superiority that later materializes in terms of nukes and warheads. Our openness and moral superiority make our productivity five times greater the productivity of our potential foes. And we have to be open in order to decide effectively if the quintuple superiority is an effective deterrence for a potential aggressor or there would be enough the double superiority.

Moreover, even though some corporate bureaucrats may not realize it, our subsidies to them do tend to have some effect on their behavior. And if they believe in a free market system (where the political and economic bureaucrats differentiate themselves by governing functions), rather than in a central planning system (where the bureaucrats tend to be a jack of all trades), these tax-induced economic distortions usually tend to be detrimental rather than helpful even to the recipients of those subsidies. As the bureaucrats of JCT noted in their General Explanation of the Tax Reform Act of 1986, on page 98, that in the loop-hole-ridden era of the 1980's, "the output attainable from our capital resources was reduced because too much investment occurred in tax-favored sectors and too little investment occurred in sectors that were more productive but which were tax-disadvantaged."

In some cases, subsidies to the corporate bureaucrats can be so large that they cause large economic shifts, as it was in 1981-86 in the real estate industry, where lavish direct and indirect tax subsidies caused a huge wave of excess office construction around the country. As the bureaucrats of Treasury Department noted in a 1991 memo: "Neutral taxation promotes the efficient allocation of investment resources, while the ability to use numerous tax incentives available for real estate prior to the 1986 Act had the opposite effect, the result of which was substantial overbuilding, one of the primary causes of the savings and loan crisis."

Conclusion

It is a well-known fact to the corporate bureaucrats, who lobby the political bureaucrats for the loop-holes in their Internal Revenue Code, that many provisions of that code reflect not the sources of public income but rather are the hidden spending programs. That is why the corporate bureaucrats prefer to get their subsidies through the indirect tax cuts -- not only because their profits would be sanctified and disguised by the political bureaucrats, but also because once enacted, they typically remain on the books as permanent entitlements and welfare for the corporate bureaucrats. On the other hand, through the indirect tax cuts, the federal bureaucrats are often become a jack of all trades, making micro-economic decisions for the corporate bureaucrats, commoner, and laborers thus distorting and harming choices of the majority, instead of doing what they supposedly do best -- making macro-economic decisions in building national infrastructure for defense, transportation, education, health-care, environment protection, and crime-prevention.

In short, most indirect tax subsidies to the corporate bureaucrats are at best wasteful to the commoners and laborers, and can sometimes harm even the bureaucrats themselves. Therefore, the commoners should vote into "our" political bureaucracy such people who would rather die for a tax reform than would live with a tax-cut.

9/4/00


P.S. Today, opening the millennium session of the UN bureaucrats, President Clinton said, that "we, want we this or not, become increasingly inter-dependent". From Clitonese, "we" means 'we, bureaucrats'. A century and a half ago, Marx proclaimed the slogan -- "Proletariat of all counties unite!" Today, Mr. Clinton proclaimed -- 'Bureaucrats of all countries unite!' And I am proclaiming -- 'Commoners of all countries unite!'

9/6/00

The New Budget Plan


Two days ago, on February 27, 2001, President Bush unveiled the $1.96 trillion federal budget for the next fiscal year that will start from October 1. According to Bush's plan for the next fiscal year, spending on education, medical research, and the military would be increased, but taxes would be cut (though scaling back corporate subsidies) and grants for health care of the poor, agricultural research, and a host of other programs would be decreased. While presenting his budget to congressmen, Mr. Bush tried to appear not as an ideological conservative, who is dreaming to slash the size and influence of the federal bureaucracy to zero, but as a pragmatic and a moderate manager of federal resources.

The budget appeared to be somewhat vague about where the cuts would be made. The scale of the cuts was understated because Bush's team did not include other spending that will pop up in the second and the following years, while this team is in charge for the federal executive bureaucracy. Among hidden increases in spending are development of a national missile defense, acquisition of a new generation of weaponry for the military and tax cuts other than those included in Bush's $1.6 trillion plan and which already have the support of the majority of the Republican and Democrat legislators.

Mr. Bush insists that "the surplus is not the government's money" -- it is the people's money; therefore, his plan would prudently restrain the growth of federal spending and provide the money needed to address problems in such areas as: the military, education, and medical research. He insists that the conservatively estimated federal surplus of $5.6 trillion over the next decade made his $1.6 trillion tax cut in the same period reasonable and affordable, even after going a long way toward eliminating the national debt and setting aside money to create private investment accounts in Social Security.

Bush's first more or less detailed statement of priorities indicates the urgent need of our aristocracy for a tax-relief while cutting money-supply needed to keep afloat the service of bureaucrats of such federal departments, useful to the commoners, as: Agriculture, Commerce, Energy, Interior, Justice, Labor and Transportation.

The Republican majority on Capitol Hill acted promptly to give Bush's tax plan some momentum. The Republican leaders in Congress said that the House Ways and Means Committee would consider his proposal to reduce income tax rates on March 1, even though some Republicans acknowledged that Congress would find it difficult to cut the pork-barrel programs. Moreover, Democrats sought to reshape the budget by arguing that Bush's plan relied on money that was supposedly off limits: $526 billion over the next 10 years in temporary surpluses from one division of the Medicare system, because the majority of both aristocratic parties in Congress have agreed that the Medicare surplus should be off limits for new spending or tax cuts. Thus, Bush's budget plan begins to show that in order to enact this tax cuts something has to be sacrificed. What is that "something," we would try to find out in this vague plan, the broad numbers of which are obscured the ways in which increases in some areas were offset by cuts in others.

Voting today along party lines, the House Ways and Means Committee, by 23 to 15, with all Republicans in favor and all Democrats opposed,  approved the heart of Bush's tax cut plan today and set up a vote in the full House next week. Democrats complained that Republicans had given them no voice in writing the legislation and had breached the spirit of bi-partisanship that the president has said he is trying to foster. Nevertheless, Democrats managed to limit the reduction of tax rates, and such parts of Bush's plan, like repeal of the estate tax and a doubling of the tax credit for children, were put aside and probably will be buried. The Republican majority rejected a Democratic alternative that offered smaller cuts and little relief for the wealthy. The lower chamber of the federal legislature will probably approve lowering tax rates across the board. It means that this year, all tax-payers will probably pay a rate, reduced by $180, for the service of federal bureaucracy. If the bill becomes law this year, tax withholdings will be adjusted to 12 percent from 15 percent the tax rate on the first $6,000 of taxable income. Beginning next year, other marginal tax rates would be reduced in stages so that by 2006, the lowest rate would be 10 percent, and the top rate would be cut to 33 percent from 39.6 percent. The intermediate marginal rates would also be cut year by year over five years. The 36 percent rate would also be reduced to 33 percent. The 31 percent rate would be cut to 28 percent. And the 28 percent rate would be cut to 25 percent. It means that the commoners would get 3 percent cut and the aristocrats -- nearly a 7 percent cut.

In the nearest future, the tax reductions would grow and would be much larger for the wealthiest tax-payers. Over this decade, the measure would empty the federal treasury by $958 billion, about three-fifths of the $1.6 trillion planning tax relief. It means that to the end of this decade either the service of the federal bureaucracy will be stinker by $1 trillion or they should, as Bush dreams, "be active, but limited; engaged, but not overbearing". And you probably already know what it's gonna be.

Although Republicans moved unusually fast (without public testimony and before an overall budget outline had been approved) and made part of the rate cut retroactive to the beginning of this year, in part to overcome objections that Congress could not act quickly enough for a tax reduction to stimulate the economy (contending that, it will have a real impact on the strength of the economy, while Democrats noted that the tax saving this year would be only $5.5 billion, about five one-hundredths of 1 percent of the $10 trillion national economy), the prospects of this bill in the upper chamber of the federal legislature are uncertain, because this body is split right in the middle (50 Republicans and 50 Democrats). So, no tax measure is likely to become law before summer.

The Democratic alternative to the $1.6 trillion of Bush's tax cuts is about a half of that sum; it would give much less tax relief to the wealthy. Although it has no chance of being enacted, it could be a starting point for negotiations if Bush's plan becomes bogged down in the Senate. Therefore, the final tax cut might be somewhere about $1.2 trillion or less, if the recession will be in full swing by the summer.

The long-term estimates of Bush's team based on a premise that our economy is in a good shape and will produce the surplus of $5.644 trillion over the next 10 years, though it has placed "a warning sign" on Mr. Bush's dash-board. Bush's team said that of the total surplus, $2.591 trillion would come from Social Security and this money would be used only to reduce the national debt or to help create private investment accounts within the retirement system in this decade. Bush's team also indicated that they would allocate $1.62 trillion to a tax cut and $417 billion to the additional interest costs from using the surplus for purposes other than debt reduction.

Bush's team proposed a year increase of 4 percent, or $25.7 billion above $635 billion current fiscal year spending on general government programs outside of Social Security and Medicare. It would increase spending on the federal bureaucracy to $660.7 billion and would be slightly above the inflationary adjustment but below the rate of increase in the past several years, including last year's increase of 8.6 percent. Although Bush's team seeks to slow the growth in spending on Medicare, it also proposed spending $156 billion over the next decade to add a program that would help retirees pay for prescription medicine.

The Pentagon's budget would increase by $14.2 billion, to $310.5 billion a year. Education would get an additional $4.6 billion, bringing the total to $44.5 billion a year. The State Department's budget would increase $1.2 billion, to $23.1 billion a year. Despite having its overall budget cut, the Energy Department would get an additional $120 million next year for a program to help low-income homeowners insulate their houses.

These increases would be coupled with cutbacks in eight of the 15 federal departments, the bureaucrats of which would see their budgets decline in dollar terms; and some of the federal agencies, like NASA, would barely keep pace with inflation. Even within some departments that would get an overall increase, some programs were slated for cutbacks or elimination.

The 207-page budget document of Bush's team do specify only few programs, which would be cut or eliminated. Thus, the Agriculture Department would lose $44 million for construction of research laboratories. The bureaucrats of the Commerce Department would be deprived the funding of the Advanced Technology Program, one of the Democrats' pets that subsidizes research by the corporate bureaucrats. The bureaucrats of the Department of Health and Human Services would be deprived a $125 million program that supposedly should provide health care to the uninsured, and the bureaucrats of the Department of Housing and Urban Development would be deprived money for a drug-abuse prevention program because those programs had been ineffective or other programs have offered the same service. The Bush's team insists on eliminating next year $4.3 billion of what budget analysts call earmarks and what commoners call pork-barrel programs, which proposed by the federal legislative bureaucrats to benefit their district constituents. The Bush's team has also proposed to eliminate $4.1 billion in one-time financing that usually goes to emergencies like fighting forest fires but sometimes gets built in year after year.

That would leave $842 billion over 10 years for what Mr. Bush termed a contingency fund, which would pay for initiatives that his budget does not provide for specifically. Democrats said that fund would quickly be exhausted and when more grounded estimates of other needs would be taken into account, from aid to farmers to additional tax provisions to Bush's own proposals for increased military spending, the budget could easily slide back into the red.

Table 4

Bush's Budget Plan for the Ten Fiscal Year (2002-2012), in billions of dollars

Years

2002-2012

2002

1. Surplus

5644

564.4

2. Surplus from Social Security

-2591

-259.1

3. Tax cuts

-1620

-162

4. Interest paid on the national debt

-417

-41.7

5. Increase spending on the federal bureaucracy

-257

-25.7

6. Prescription drugs for seniors

-156

-15.6

7. Increase in spending on the military bureaucracy

-142

-14.2

8. Increase in spending on the educational bureaucracy

-46

-4.6

9. Increase in spending on diplomats

-12

-1.2

10. One time spending on the insulation of homes

0

-0.12

11. Decrease in spending on agriculture

+0.44

+0.044

12. Decrease in spending on the health bureaucrats

+1.25

+0.125

13. Decrease in spending on the pork-barrel programs

+43

+4.3

14. Decrease in spending on the forest bureaucrats

+41

+4.1

15. Surplus leftovers by me

+488.69

+48.75

16. Surplus leftovers by Mr. Bush

+842

+84.2


As you can see from the Table 4, summing up Bush's numbers for the contingency fund or surplus leftovers, he got nearly twice as much as I do. Is it just me or may be Mr. Bush has problems not only with grammar? However, it is more probable that his math problem is only the bargaining chips for the "a-hole" Dems. However it may be, we (the commoners) should consider those numbers as "reasonable" only if we would consciously neglect the warning omens in our ovens.

3/1/01

Selling The New Tax-cuts


Today Mr. Bush offered a cautiously optimistic assessment of the national economy, calling it "winded, but fundamentally strong'' and contending that "his" policies on education, energy and free trade were critical for its continued "health". He argued for his package of tax-cuts and restrained federal spending in a state-of-the-economy address in Kalamazoo, Michigan, where he spelled out what the Baker-Cheney think-tank views as the economy's strengths and weaknesses, and where he tried again to sell his tax-cut proposals. Bush also reminded his audience that the economy began to cool before he took office.

In recent days, the White House bureaucrats have signaled their willingness to make the income tax components retroactive to swiftly pump up the economy. They have also said they might be willing to delay Bush's repeal of the estate tax to make way for a larger and quicker income tax break aimed at spurring the economy this year. Although Bush has said in recent weeks that the economy is "sputtering"' and "my policies face reality as we found it and lay the foundation for future growth," he has still argued that tax cuts could bolster it. Meanwhile, the White House economic adviser L. Lindsey, referring to proposed 10-year, $1.6 trillion tax reduction, told USA Today that he wants to stress, "it's a matter of delay, and it's not delay for 25 years... It's a delay for maybe a year or two''. Concurring with Lindsey, the Treasury Secretary Paul O'Neill told an audience in Washington on Tuesday that, "The U.S. economy is fundamentally sound, with low inflation and low unemployment.'' Downplaying the stock market's big declines, O'Neill said that they should be viewed against the backdrop of a tripling in stock prices over the past decade. He also reminded that, "Strength of the U.S. economy is not reflected in any one asset price or number, but in the flexibility and adaptability of our entire economy to new challenges. The recent slowdown occurs against the backdrop of this fundamental soundness and follows on the heels of the extraordinary real growth of recent years.''

Bush sent to Congress a plan to overhaul public schools shortly after taking office, and was arguing today that it would boost the nation's productivity in the long run. He has warned that the energy crunch that threatens to cripple California could spread, and he was declaring in his afternoon speech that a broad national energy policy was crucial to safeguarding the nation's economy. Although Bush said that free trade was vital to the nation's economic health, he also wants to re-negotiate a new trade agreement covering the Western Hemisphere.

Deviating from recent practice, Bush delivered his speech rather from a TelePrompTer than extemporaneously. Moreover, the time and location of Bush's speech were carefully chosen in order to have maximum impact on the Democratic lawmakers while his economic plan is making its way through Congress. The White House tacticians hoped to find a responsive audience among the Michiganders, whose memories of the last recession with its rising unemployment remain fresh and who can press their two Democratic senators, who need to be screwed. That is why Bush has campaigned for the past several weeks in such "Democratic" states as Michigan, Montana, and Maine.

Recent polls suggest the commoners concerned that the Republican federal bureaucracy effects badly on public confidence. Almost six in 10 independents in a recent CNN-Time poll and three of four Democrats said that Bush's negative talk about the economy hurts the economy. Nevertheless, according to that CNN-Time poll, half of Americans approve of the way the new administration is handling the economic matters. However, according to a recent ABC-Washington Post poll, four of five Americans disapprove it. Almost two-thirds said they think the economy is headed into a recession.

3/27/01


THE SECOND ROUND OF THE BUDGET SAGA


On April 9, Mr. Bush unveiled more details of his first budget, planning to increase federal spending on education and biomedical research while curtailing other federal programs, which he described as ineffective. According to Mr. Bush's proposal, federal spending would total $1.96 trillion in the 2002 fiscal year, thus, increasing by $105 billion or 6 percent, comparing with the current fiscal year. Roughly two-thirds of the increase would go to six areas: Social Security, Medicare, Medicaid, other health care, education, and defense.

Mr. Bush proposed to allocate $153 billion to pay for prescription drug benefits. He also proposed other unspecified changes in Medicare over the next decade. But the Republican and Democrat congressmen alike say that twice that amount is the minimum that will be required for drug benefits at a time when drug spending is rising more than 15 percent a year in most private health plans.

Mr. Bush said that this budget "protects taxpayers, protects children, protects our surplus. It represents compassionate conservatism". Not touching the third rail of "compassionate conservativism," it should be noted that Mr. Bush, as usual, said something that he did not mean. Of course, Mr. Bush was not implying that his budgetary plan already protects whomever and whatever he likes, because he knew or ought to know that the budgetary plan has a long way (theoretically to October 1) to becoming a law of the land and one of the many means to protect our children and our purses. Of course, we should understand that such a prominent politician "with results" as Mr. Bush rushes to get those results, if not actually, then, at least verbally. Therefore, we should not be too judgmental to the present tense of Mr. Bush.

The Bush's budgetary plan partially was based on a premise that our taxes would be reduced by Congress by $1.6 trillion over the next decade. Although the House endorsed the $1.6 trillion figure earlier, the Senate last week voted for just over $1.2 trillion in cuts, roughly mid-way between what the conservative Republicans wished and what the moderate Republicans and Democrats in Congress say would be prudent. The final numbers of budget will not be known until after the final compromise on this matter between the Senate and the House congressmen.

The federal legislative Democrats asserted that the new executives had cut worthy programs to accommodate their tax-cut proposal. Dems pointed out that the new executives proposed to cut aid for the hiring of local police officers, the training of doctors at children's hospitals, and the conservation of energy. However, the White House (WH) bureaucrats said that such cuts would allow them to achieve substantial savings just by eliminating appropriations not requested by the previous administration but earmarked by Congress for specific projects, including roads, bridges and hospitals.

To keep floating Mr. Bush's promise to "leave no child behind," the WH bureaucrats proposed to increase the budget of the federal bureaucrats of the Education Department by $4.6 billion, or 11.5 percent, raising its total to $44.5 billion next fiscal year; thus, reducing the monstrous increase of $10 billion approved by Congress in December. On the other hand, the WH bureaucrats proposed to slash farm programs, especially those that supplement the income of farmers, thus, complying with the demand of the EU bureaucrats, long complaining about unfair competition of the subsidized American agricultural goods on the world market. The overall budget for agriculture activities would decrease from $29 billion this year to $15.8 billion next fiscal year. The budget of the federal bureaucrats of the Commodity Credit Corporation, an agency of the Agriculture Department that handles farm subsidies, would be reduced from $21.6 billion to $8.3 billion, and gradually decreasing to $6 billion in 2006, when Mr. Bush's conservative supporters in the Senate will be relieved of their present duty. Although the WH bureaucrats assert that the farm conditions are improving, the federal legislators from farm states (Democrats and Republicans alike) assert that it is not the case; therefore, the latter strenuously resist the proposed budgetary cuts.

Preferring so-called tax credits and other hidden tax-cuts over the direct federal spending, the new WH bureaucrats proposed new indirect spending or tax credits for purchasing health insurance or buying household equipment that uses solar energy to generate electricity and heat in order to pacify the moderate middle-class Republicans. The new WH bureaucrats also wish to get credit among the rest of the commoners for an increase that has already occurred in such popular programs as the National Science Foundation. To this end, the present WH bureaucrats compare their own pet-program spending of 2002 with the amount spent in 2000 by the previous WH bureaucrats, while comparing "ineffective" program spending with its big increase in 2001. Thus, the present WH bureaucrats wish to cut such favorite Clinton initiatives as the Community Oriented Policing Services, or COPS, the budget of which would be cut from $1 billion to $855 million.

On the whole, the budgetary proposal of the new federal executive bureaucrats is moderately conservative. It would continue unchanged many programs of the Clinton administration and would modestly cut-back or increase few of them, though providing less than necessary to keep up with inflation, probably due to the monstrous tax-cut proposal of $1.6 trillion.

4/10/01


POWER VS. POWER


Soaring gasoline prices have landed the new WH bureaucrats in the middle of a political storm, and they can blame only themselves. They caused gas prices to rise nearly in the same manner as Clinton's bureaucrats did when prices jumped above $2 a gallon last summer. As with any political administration, there is little they can do in the short term to bring prices down. However, the new WH bureaucrats set themselves up for the Democrats as the boys-for-beating for a problem they have little or nothing to do with.

At the beginning of the Republican rule in the WH, their trio think-tank (Baker-Cheney-Rumsfeld, oily-men themselves) developed a national energy strategy. Mr. Cheney has been cooking it for three months of secret meetings reminiscent of Hillary Clinton's closed-door plotting on health care. Then, the trio instructed Mr. Bush to embark on a series of tough-guy speeches in which he branded conservationists as virtuous wimps and asserted the extraction strategy as the only strategy that could meet the nation's energy needs. Taken into consideration that the corporate bureaucrats of the oil industry were huge contributors to Mr. Bush's campaign, it has not been difficult for the Democrats to portray the new WH bureaucrats as captives of big oil corporations and foes of the little commoner at the pump.

The irony of the present gasoline crisis is that the commoners and laborers who are accustomed to it might not be so troubled by the rising gas prices if the Republican brainy trio had not spent so much time scaring them about the country's energy future. Mr. Bush is now campaigning with a slogan that "we're running out of energy," and Mr. Cheney has been forecasting a bleak future unless "we" start punching holes in the Arctic tundra and elsewhere in California, and building 1,300 new power plants in the next twenty years. So, the commoners shouldn't be surprised when the summer spike in gas prices would occur; however, they might perceive, with the correct serving of the media, that it would be a confirmation of the very apocalypse the trio has been predicting.

Moreover, the new WH bureaucrats apparently have ignored the stabilizing forces of the market, which, as we speak, is working to match supply with demand and stabilize prices of natural gas and gasoline. For instance, the rise of prices in natural gas over the last few years, has more than tripled the number of drilling rigs in operation, and this in turn is likely to alleviate the shortages that underlie the Republican brainiacs' call for urgent political invasion into economy.

Mr. Cheney attributes the recent spike in prices at the gas pump to industry's failure to build any new refineries for the last 25 years, but the normal market fluctuations can explain it more convincingly. The corporate bureaucrats of oil industry failed to anticipate changes in the buying habits of the commoners, who previously, in the 1970's and 80's, were buying smaller and more fuel-efficient cars because they needed more decent dwellings than bigger cars. At that time the oil refining business became depressed getting profits below the usual norm, and the corporate bureaucrats of the oil industry made only incremental additions to the capacity of their refineries. When the American commoners become fat enough to afford the SUV guzzlers in the 1990's, the captains of the oil industry were caught short-minded. Now those corporate bureaucrats want to maintain their profits and respectability for the public expense, of course. It was easy for them to give some crumbs to the Bush campaign in order to drew now billions off the commoners' packets, requiring the expansion of the drilling fields.

Expanding drilling fields, refining capacity, and upgrading pipelines will, in due time, get more gasoline to the market and will help lower prices at the pump, but it ought not be done from the federal treasury and at the commoners' expense. More importantly, the Republican brainyacs have dismissed conservation and efficiency as vital components of their strategy to cope with the pending energy crisis. As being at service to the corporate bureaucrats of the oil industry, the political bureaucrats prefer rather to be led than to lead in solving the problem of gas supply and demand. Therefore, the present WH bureaucrats shouldn't be shy of their role of boys-for-beating. They knew at the start who and how they must serve.

In recent days, Mr. Cheney has been softening his tone a bit sounding as if he is trying to balance out the short-term needs of the oily corporate bureaucrats in profits and the long-term needs of the commoners and laborers in fresh air and water. Acknowledging that improved fuel-efficiency and care about environment had been the main cause of the United States' energy successes since the gasoline shortages of the early 1970's, Mr. Cheney noted that the American economy had managed to grow fivefold while increasing only on one third in energy consumption. Continuing to stress that new technologies had made it possible to produce more energy with less pollution, he admitted that it would be easier for the new political bureaucrats to offer tax incentives for renewable energy sources and more fuel-efficient cars. Nevertheless, he insists that strengthening fuel economy standards for cars and trucks alone would not ease the grip of energy shortage. Mr. Cheney's song remains unchanged; and according to it, the only sure way to solve the energy shortage is to move aggressively to increase supply of oil and natural gas by removing political impediments to the increased burning of coal and building new infrastructure (including refineries, electric- and pipe-lines). According to the extreme position of the Republican brainyacs, there is nothing wrong on the side of increasing demand of gasoline. Consequently, the Bush's energy plan, as any extremism, lacks a balanced approach to the matter at hand.

Energy Plan

The trio instructed Mr. Bush to proclaim the country's energy shortages the most serious since the 1970s; thereafter, he unveils a plan aimed at boosting supplies of oil, gas and nuclear power, saying nearly nothing about controlling the demand on those energy sources. Although the Bush's plan aims to correct "the fundamental imbalance between supply and demand,'' it proposes little or nothing to solve this summer's pending spikes in gasoline prices or California's electricity shortages. It includes several proposals to drill for oil in an Arctic wildlife refuge and possibly reviving nuclear fuel reprocessing, which was abandoned in the 1970s as a nuclear proliferation threat. Proclaiming that "America faces the most serious energy shortage since the oil embargoes of the 1970s,'' the 163-page plan intimidates the commoners and laborers as it outlines 105 proposals from speeding up construction of power lines and development of clean coal technology to reviewing whether to tighten vehicle fuel economy standards.

The federal legislators would be necessitated to make laws out of some of those proposals. The Republican plan includes the $10 billion indirect tax-cut over 10 years for conservation and energy development. About half of that tax-cut either already exists or had been proposed in their February budgetary plan. Mr. Bush was authorized to kick off a campaign to sell the Republican energy proposals. He made some speeches in Minnesota and Iowa recently, saying repeatedly that there is no "quick fix" to the country's energy problems. The key feature of the WH proposals is the stress on the increase of supply. The proposals provide few specifics that would reduce the threat of blackouts in California this summer or reverse the recent spike in gasoline prices nationwide. However, the Republican plan intimidates the commoners and laborers that if energy supply would not soon increased to meet the growing demand, then, "this imbalance... will inevitably undermine our economy, our standard of living and our national security." Therefore, the WH plan proposes to ease regulatory barriers for building nuclear power plants, for expanding oil and gas development, and for improving the electricity grid. Thus, the WH bureaucrats are instigating the Congress bureaucrats to go in the very way of the Californian legislators who are now blaming for the sharp de-regulating their energy-producing industries.

As for conservation and fuel-efficiency, the Republican plan proposes about the $6 billion indirect tax-cut over 10 years to reduce energy use, mostly to spur the sale of hybrid gas-electric vehicles and development of co-generation power plants that waste less energy because they produce electricity and heat. Even before the plan's release, the commoners' thrust to the Republican energy strategy was shattered by the influence of Democrats who said it would increase air pollution, open pristine federal lands to development and do too little to preserve clean air and water for the following generations of commoners and laborers.

The extreme "conservativists" propose "lip service to the problems we have in the short term,'' as Tom Daschle, Democrat of S. Dakota and the senate "minority" leader, put it. More importantly, they pay lip service to the problem in the long term. Of course, there is some reason in the WH bureaucrats' reasoning that Californians now must pay for their own past sins, because they chose such radical political leaders who mastered the present shortages. Correctly the conservative hawks assert that the temporary electricity price control would not ease the energy shortage in California in the long run. As they put it, "Price controls do not increase supply, nor do they affect demand." However, price controls do affect demand in the short run, keeping it at the same or at an increasing level when it should be going down.

The Republican energy plan will be sent to the congressmen, who will soon make some energy laws out of it. Democrats already have vowed to fight some of its key provisions and have proposed a few of their own. Among the most controversial provisions of the Republican plan is to lift the ban on drilling in the Arctic National Wildlife Refuge in Alaska. Democrats have vowed to block any legislation freeing the refuge to development. Another controversial provision would allow the federal bureaucrats to seize private land for power lines; this provision is expected to meet sharp opposition from property rights advocates of both aristocratic parties.

The Republican energy plan also promotes commercial nuclear power through nuclear reprocessing, in which plutonium is chemically salvaged from used reactor fuel to be used again in a reactor. That methodology was abandoned in the 1970s in the United States because of nuclear proliferation concerns, though it is still embraced in Japan and Europe. Some nuclear power advocates favor reprocessing because it reduces the amount of highly radioactive reactor waste that needs to be disposed. Non-proliferation advocates have strongly opposed reprocessing because they fear the plutonium could be diverted to make nuclear bombs.

Among other proposals of the Republican energy plan are:

--directing the bureaucrats of Interior Department to review all federal lands to determine their potential for oil and gas development;
--streamlining regulatory approval for energy facilities, including power plants, hydroelectric dams, refineries, and transmission lines and natural gas pipelines; that is, to release these industries from congressional supervision;
--providing or extending indirect tax-cuts for renewable energy sources such as wind turbines, organic waste energy plants, or methane landfills that produce energy as well as purchase of solar panels;
--expediting approval by the federal executive bureaucrats of a pipeline construction to carry natural gas from Alaska's North Slope, if such a permit is requested;
--providing $2 billion over 10 years for research into clean coal technology, to assure the future of coal as a major energy source;
--directing the bureaucrats of Environmental Protection Agency (EPA) to ease regulations and to give refineries more flexibility in producing gas.

Of course, the Republican energy plan proposes some direct tax-cuts for the conservationists, but the total amount of the direct and indirect tax-cuts would be less than 2% of the $1.35 trillion tax-cut package, on which the aristocrats have agreed upon. Now you, folks, can see with the naked eye the futility of the conservative extremists to brand their plan as "a balanced approach in solving our problems". The only way the commoners can be sure that their long run interest in fresh air and clean water will be followed through by the federal bureaucrats is to create their own, real middle-class party.

5/17/01

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Victor J. Serge created this page and revised it on 04/13/03