Good News for Joe Trustfund, Bad News for Joe Sixpack

The economic prospects for average Americans are deteriorating. Unemployment is rising, job insecurity is increasing, personal income growth has stalled, health-care costs are soaring, pension values have plummeted, and states are cutting back on education, transportation, and other services while hiking real estate, sales, and income taxes.

Not surprisingly, in the weeks leading up to the midterm elections, the economy was No. 1 on the minds of voters, outpolling both terrorism and Iraq. The economy's faltering performance should have made it an easy target for the Democrats, but they failed to unite around a compelling economic message. Buoyed by the President's personal popularity, the Republicans won a decisive congressional victory. Now, the President is going to put his economic agenda to work. Unfortunately, it isn't an agenda that represents the interests of the average American.

In sharp contrast to the Democrats, President George W. Bush has been unambiguous about his economic priorities. Tax cuts, along with large increases in spending on national security, top the list. Fiscal responsibility comes in a distant second. And the tax cuts that matter most to Bush, such as the elimination of the inheritance tax, are those that benefit the very rich. You won't hear the President suggesting a temporary payroll-tax reduction for middle- and lower-income workers to stimulate the economy despite the fact that three-quarters of working Americans pay much more in payroll taxes than they do in income taxes. Nor will you hear him recommend federal grants to the states to help them cover the costs of their educational and social services during a period of austerity. Instead, you will hear him reiterate his demand to Congress to make his tax cuts permanent, perhaps even accelerating reductions in the top income tax rates that have not yet taken effect. But he certainly won't mention that by 2010, about one-half of the total benefits of his tax-relief package will go to the wealthiest 1% of taxpayers. And he won't reveal that three-quarters of the modest tax breaks for the average Americans in this package have already occurred.

The Bush economic agenda is also unabashedly pro-business. Despite the brouhaha over corporate malfeasance, the President has already scaled back his request for additional funding for the Securities & Exchange Commission, making it more likely that future infractions of the nation's securities and accounting laws will go undetected and unpunished. And his plan to reduce America's dependence on foreign sources of energy includes granting generous tax relief and coveted exploration rights in Alaska's Arctic National Wildlife Refuge to big energy-producing companies while slashing support for conservation and the development of alternative energy sources.

Nowhere is the President's pro-business stance more transparent than in his proposal for a prescription-drug benefit for Medicare. There's little doubt that a drug benefit is sorely needed. Prescription-drug costs are the fastest-growing component of health-care expenses. A third of the elderly has no drug coverage at all, and many of the rest are inadequately covered. The President proposes to address this problem by providing subsidies to private insurance companies--a major source of campaign donations to the Republican Party--to offer prescription-drug policies. This approach is destined to fail. Despite the lure of subsidies, few insurers will be tempted to offer such coverage at affordable prices because they know that the elderly Americans most likely to purchase it are precisely those elderly Americans who have the greatest need for expensive medicines. In contrast with the Republican approach, a Democratic plan would add a prescription-drug benefit to the Medicare program. The Democratic alternative is opposed by both the insurance and pharmaceutical industries and would cost substantially more than the Republican plan. But the Democratic proposal would work--and savings from canceling Bush's future tax cuts for the wealthiest Americans could cover its costs.

Then there's the issue of Social Security, which is still the single largest component of retirement income for 80% of the nation's elderly. If the President's tax cuts do become permanent, their total magnitude will be more than double the size of the deficit projected for Social Security over the next 75 years. The President has chosen to use the temporary surpluses of the Social Security system to finance tax breaks that disproportionately benefit the wealthy rather than bolster the system's long-term solvency.

The President has clearly identified his economic priorities. The Democrats need an equally straightforward response. They should not espouse big government, nor should they preach a rigid commitment to balanced budgets and debt reduction, regardless of the state of the economy. Instead, the Democrats should focus on fairness, a message that will resonate with the average American whose economic interests are not being served by the President.

By Laura D'Andrea Tyson

    Before it's here, it's on the Bloomberg Terminal.