Maine’s two senators did manage to make a dreadful Bush tax proposal less disastrous. Yet whether the final package was tax legislation that serves Maine and the nation better than no plan at all remains to be seen. On that issue, which apparently divided our two Republican senators, I opt for the position that the 2003 tax cut will impede the quest for economic justice and sustainable economic growth.

There is no question that this economy needs some stimulus. A jobless rate that has hovered in the 6 percent range for months represents only the tip of the economic iceberg. The job market is worse than it appears. In many communities the number of job seekers who have become too discouraged to look for work has grown dramatically in recent months, but these workers are not even officially counted as unemployed.

An adequate stimulus package should be frontloaded, that is, it should put money into taxpayers’ hands now. And it should target its resources on those who are most likely to spend it now. This legislation fails both tests.

Sweetening the child care credit is good social policy, but the new plan has been cleverly designed to deny benefits to most poor families. Some extra money for middle and working class families is likely to be spent and to stimulate the economy. Nonetheless, the reduction in dividend taxation offsets these gains. As tax policy, it creates an incentive for corporations to pay high levels of dividends rather than retain earnings and reinvest in new plant and equipment.

Furthermore, the bulk of the benefits from such tax changes go to the wealthiest 5 percent of the population, who will be inclined to save their new windfall. The benefits from reductions in the capital gains tax and in the top marginal income tax bracket are also heavily tilted toward the affluent.

The prospect of larger current and future deficits has already added to the political momentum in Washington to reduce federal outlays. Liberals and moderates in the Senate did partially redress this problem by allocating $20 billion of the “tax cut” as fiscal assistance to the states. Nevertheless, this level of assistance will be overwhelmed by cuts in federal spending in response to ballooning deficits. The Bush administration has already failed to deliver on its promises to fund its heavily advertised education initiatives.

Economic stagnation and inadequate federal assistance for schools, Medicare and Medicaid have already taken a toll in Maine. The Maine Center for Economic Policy reports recently that the new state budget funds General Purpose Aid to Education at $10 million less in the first year and $40 million less in the second year than originally projected. MECEP suggests that many school districts “will have a hard time balancing school budgets without a property tax increase.”

The mental health budget has taken even more draconian hits. These reductions leave many of the most vulnerable in our population little to hope for other than new rounds of court challenges to state policy.

If prospects for the near term are poor, the long-term structural implications of the Bush plan are at least as bleak. The administration advances a “supply-side” argument for the tax cut that defies logic. Not only will a dividend tax cut increase incentive to pay dividends rather than retain earnings for reinvestment, it also risks generating a new stock market bubble.

Historically, most corporate economic growth has resulted from retained earnings rather than from new stock issues. The one major recent exception to that rule was the dot com and telecommunications bubble of the late nineties. Encouraging investors to take money out of banks and bonds and plunge once again into the stock market is exactly what our economy does not need. Such tax incentives plus a growing federal deficit will make interest rates go up and will also make it harder for states and municipalities to raise the capital needed for long term public sector investment.

This of course is the hidden or not so hidden subtext of the Bush agenda – let the public sector be damned. Most Democrats have been right in attacking the distributional implications of this tax policy, but a genuine opposition party needs to address Republicans’ visceral hatred of all public spending save for the military.

U.S. economic growth over the 1945-1975 era was the fastest and most equitable in our history. The public sector, including interstate highways, expansion of post-secondary education through the GI bill, Medicare, and major high-tech research and development were keys to private sector expansion. That story needs to be retold and its policy implications updated if we are to undo the harm this new tax package is likely to inflict on both Maine and the nation.

John Buell is a political economist who lives in Southwest Harbor. Readers wishing to contact him may e-mail messages to jbuell@acadia.net.