If President Bush were a stockbroker, he might be accused of churning. The growth package he announced on Jan. 28 shuffles the policy portfolio but offers little in the way of fundamental change. Sometimes, the White House actually fights with itself, subsidizing and penalizing essentially the same activity (table).
And in a grand old election-year tradition, Bush wants to borrow from the future to boost growth now. He would pass out some goodies before November, only to whisk them away within 18 months. The result: a spurt in consumption that may well give way to a drop in activity in 1993.
The shuffling is evident throughout Bush's budget. His real estate proposals give away money but do little to boost long-term growth. His profamily proposals subsidize children but not marriage. The conflicts are even clearer in the President's proposed savings incentives.
SAVE OR SPEND? The White House wants to shift resources away from current consumption and toward future investment. But a closer look suggests otherwise. One vehicle to encourage private saving is the Flexible Individual Retirement Account, a generous tax-free investment plan. But by allowing the money to be withdrawn for medical, education, and home-buying costs, the plan also tries to boost consumption. And at the same time that the Administration offers new tax breaks for IRAs, it would slash tax breaks for people who do their long-term saving through insurance-company annuities.
Bush's real estate proposals would likewise do little to increase long-term growth. First-time home buyers not mnly can make a penalty-free withdrawal of their IRA money for their downpayment but they would also enjoy a $5,000 tax credit for houses they buy this year. That may spur construction now but could mean a marked slowdown a couple of years from now. Says economist Joel Prakken of Lawrence Meyer & Associates: "You'll get a real whipsawing effect."
At least the housing proposal would boost construction in the short run. That's more than you can say for another measure, which would allow developers to use losses from one project to offset their tax liability on profits from other deals.
MIXED MESSAGE. With an office-vacancy rate of nearly 20%, a tax break for developers is unlikely to put a single carpenter or mason back on the job. What it would do is increase asset values, forestall some foreclosures, and, perhaps, keep a few bank lenders alive for a while longer. But it would do nothing for commercial real estate's real problem--too little demand for too much inventory.
Investment in human capital suffers from the same kind of shuffling. Bush is trumpeting his support for families. And he points to two specific proposals--the $500-a-kid increase in the personal exemption and beefed-up funding for Head Start, the preschool program. But by subsidizing the cost of children without ending the tax penalty on married couples, the "profamily" President sends a mixed message.
As for Head Start, it turns out that the big boost in funding is only for the coming fiscal year. Over the remaining four years of the Bush budget, Head Start would be frozen at 1993 levels. And according to the Urban Institute, spending for all human-resources programs, except health care, would decline by more than a full percentage point of gross domestic product over the next five years.
The Bush economic package seems increasingly Oz-like. There's a lot of noise and smoke, but look closely, and there isn't very much behind the curtain.