‘It’s the economy … again’

In 1992, aides to presidential candidate Bill Clinton kept a note tacked to the wall that reminded them to stay close to the issue most on voters’ minds: “It’s the economy, stupid!” Although America’s attention in 2002 is also focused on threats to our security, there is once again a growing unease about bread and butter issues.

That concern is well-founded. Every significant economic indicator is down, and the pain is being felt by almost everyone. Since January 2001, unemployment rates have risen dramatically, a million and a half jobs have been lost, bankruptcy filings have reached an all-time high, and a record level of homes are being foreclosed. Median income – the best measure of what an average family earns – fell this year, the first decline since 1991. The number of Americans living in poverty increased by more than a million in President George W. Bush’s first year in office. A dramatic drop in the value of stock market investments intended for retirement or college means millions of families must abandon, delay or sharply revise their hopes and plans. The cost of health insurance and prescription drugs continues to soar, a phenomenon that squeezes the finances of families and businesses, and stifles innovation and job growth.

All this grim news is taking a toll on consumer confidence, which recently hit a 10 month low. A New York Times-CBS poll indicates that a majority of Americans think the economy is in its worst shape in a decade. Nearly half of all Americans fear that they or someone in their household will lose a job within a year.

Why are we in this economic slump that seems to be digging in rather than bouncing back, as had been forecast? Understanding the ups and downs of an economy is not a science, and fixing blame or finding cures is a tricky business. However, I believe there are some pretty clear reasons for our predicament.

At the top of my list is fiscal irresponsibility. Massive tax cuts were proposed and enacted last year based on assurances that we could afford them. The administration assumed that the economy would continue to thrive, the stock market would not falter, and budget surpluses would continue. They were wrong. When things began to sour, the same tax package was sold as an economic stimulus. To achieve this, however, the cuts should have been carefully targeted, as I urged.

The tax cuts that have already been implemented may have helped the economy from sinking even further. Most of the tax breaks in the president’s package, however, have not yet taken effect. During the next decade, these tax breaks will deplete over a trillion dollars from the treasury. This will cause federal budget deficits to mushroom, making the cost of borrowing more expensive for the private sector.

Moreover, unlike the first round of cuts (which went mostly to middle income families and businesses), these cuts are aimed at wealthy individuals and corporations, who are less likely to quickly put the money back into circulation. Both the size and target of these cuts, then, will do little or nothing to stimulate growth.

The New York Times-CBS poll also indicated that a majority of Americans think that President Bush and congressional leaders are neglecting problems at home. I agree. What we need is creative attention, however, not the one-size-fits-all approach of more untargeted tax cuts.

We need attention that deals with struggling industries and workers and that contends with a collapsing health insurance system. For example, raising the minimum wage and extending unemployment insurance for the jobless will put money where it is needed and will be spent effectively. A short-term stimulus package tied to immediate reinvestment by businesses or that addresses pressing domestic needs (like establishing domestic anti-terrorism infrastructure or making health insurance and prescription drugs more affordable) would also be economically stimulating. We can pay for these measures by adopting a long-term fiscal responsibility plan that, for example, defers those unwise tax cuts and bans overseas tax loopholes and sham foreign incorporations.

Washington must also direct attention to the effect of its fiscal policies on state and local governments. For example, federal estate tax cuts triggered Maine tax cuts that will cost the state $377 million over the next decade. With state budgets already in the red, federal mandates (like antiterrorism measures and special education) that are unfunded or underfunded are particularly burdensome. federal assistance to states during this economic downturn would help maintain services and prevent layoffs.

Only when we confront the real economic issues will we be on the right economic track. The right economic choices mean a brighter future for all of us.

Tom Allen is the Democratic member of Congress in Maine’s 1st District.