A new year and a new rationale from George W. Bush for a large across-the-board tax cut that will disproportionately benefit the wealthy. I'm not surprised. After all, such a tax cut is a core goal of conservative GOP ideology, regardless of implications for the federal budget and the economy's performance.

Last year, when the economy was booming, then-candidate Bush advocated his $1.3 trillion tax cut on philosophical grounds. He warned Americans that "you can't trust Washington with your money." He failed to mention that Washington's debt was also the people's debt and that Washington's spending finances such popular programs as Medicare and Social Security.

As Bush prepares to take over the Presidency, he has understandably and predictably dropped his anti-Washington rhetoric. Fortuitously, the slowing economy has provided a new argument for cutting taxes. In recent weeks, slipping into a Keynesian rhapsody, he has championed his tax plan as insurance against a downturn, even though his campaign advisers had maintained that the same tax plan would not boost aggregate demand. There's an inconsistency here, since Keynesian logic works in both directions.

You might suspect that as an economist known to harbor Keynesian sensibilities--after all, I led the Clinton Administration's fight against passage of a balanced-budget amendment in 1995--I might be persuaded by Bush's new pitch. I'm not. I'm worried about the risk of a recession this year. But a tax cut passed late in 2001 for partial enactment in 2002--which is the calendar dictated by the budgetary process--will not reduce that risk. Worse, such a cut may prolong the slowdown by weakening the Fed's resolve to reduce short-term interest rates early this year.

DELAYED REACTION. A brew of nasty ingredients, including higher energy prices, higher interest rates, and a dive in stock market values, has certainly raised the probability of a recession during the first half of 2001. At their last meeting, Federal Reserve decision-makers acknowledged these worsening conditions and strongly hinted that short-term rates would soon fall. Even prompt action by the Fed, however, will not have much effect during the period of greatest risk, because it takes nine to 18 months for changes in interest rates to influence economic activity. And some of the slowing effects of the 175-basis-point increase in rates that occurred between mid-1999 and mid-2000 are yet to be felt.

But the prospects for fine-tuning the economy's performance in 2001 through changes in fiscal policy are even bleaker. In theory, John Maynard Keynes was right: A well-timed boost in aggregate demand through tax cuts or spending hikes--an option that President-elect Bush neglects to mention--can forestall a recession or ameliorate one already in progress. The key condition, however, is that the medicine be "well-timed." Experience in the U.S. and elsewhere reveals that this condition is rarely met. When governments try to fight recessions by cutting taxes or increasing spending, they almost always get the timing wrong. By the time the tortuous budgetary process yields a new policy, the recession is over and the fiscal stimulus is no longer warranted. Nor, unfortunately, is it easily reversed, especially if it takes the form of a tax cut. And a more expansionary fiscal policy during the recovery means a more restrictive monetary policy with higher interest rates, lower investment, and slower long-run growth than would otherwise be the case.

EMERGENCIES ONLY. Cutting taxes to prime the pump should be limited to rare circumstances of deep and persistent recessions that cannot be cured by aggressive monetary easing. Such circumstances engulfed the U.S. during the Great Depression and Japan during the 1990s. Thankfully, they do not appear applicable to the U.S. in 2001. Except in such dire circumstances, fiscal policy should be shaped by long-run priorities. And as the experience of the Clinton Administration demonstrates, long-run fiscal discipline, by fostering lower interest rates, provides the most secure foundation for short-term growth.

Bush identified his long-run priorities during the campaign. He wants to devote the lion's share of the non-Social Security surplus to tax cuts, the bulk of which benefit the richest 10%, and he wants to spend more on the military. Spending on education, Medicare, and other government programs are lower priorities. So is debt reduction. The new Congress should debate these priorities on their merits--it should not be swayed by meretricious warnings from the Bush team that a recession is imminent. Such warnings are both misleading--odds still favor a soft-landing slowdown over a hard-landing recession--and irresponsible because they intensify the anxieties of consumers and investors at a moment of fragile market confidence. Bush wants a large tax cut for political reasons, not economic ones. Neither he nor his economic advisers, most of whom are avowed supply-siders, really believe the Keynesian logic that they are now espousing.

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