Columnist Bruce Bartlett
He is a senior fellow at the National Center for Policy Analysis. His twice-weekly column on economic policy is published in The Washington Times and Detroit News and is nationally syndicated. He was deputy assistant secretary for economic policy at the U.S. Treasury Department, from September 1988 to January 1993. In 1987 and 1988, Bartlett was a senior policy analyst in the Office of Policy Development at the White House. Before that, he was a senior fellow at the Heritage Foundation in Washington, D.C.
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Other segments from the episode on February 25, 2003
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DATE February 25, 2003 ACCOUNT NUMBER N/A⨠TIME 12:00 Noon-1:00 PM AUDIENCE N/A⨠NETWORK NPR⨠PROGRAM Fresh Airâ¨â¨Interview: Paul Krugman discusses President Bush's tax cut planâ¨TERRY GROSS, host:â¨â¨This is FRESH AIR. I'm Terry Gross.â¨â¨Although war with Iraq is occupying world attention, many Americans say theâ¨most important issue to them is the economy. President Bush says his tax cutâ¨plan will revive the economy. His critics say the plan will primarily helpâ¨the wealthy while getting us into a potentially catastrophic level of debt.â¨The president says Americans would receive an average tax reduction of $1,083,â¨but his use of the word `average' has been contested. For example, accordingâ¨to a study by the Tax Policy Center of The Brookings Institution and the Urbanâ¨Institute, if you compare the average tax reduction within different incomeâ¨brackets, you see a different story. The study says the average tax cut forâ¨people with incomes over $1 million would be about $90,000. A $200,000 incomeâ¨would get about a $12 1/2 thousand break. The tax cut with incomes of 40 toâ¨$50,000 would be about $380.â¨â¨We're going to hear from guests on each side of the tax debate, starting withâ¨Paul Krugman. He's a New York Times columnist who's also a professor ofâ¨economics and international affairs at Princeton University. He says the Bushâ¨plan won't be an effective economic stimulus. The tax cuts don't go intoâ¨effect quickly enough for that.â¨â¨Professor PAUL KRUGMAN (Princeton University): If your objective is to putâ¨money in people's pockets and, you know, help the economy now, then you want aâ¨tax cut that delivers a big bang into the hands of people who are likely toâ¨spend it, and you want to do it in the next year or two. If you look at bothâ¨the original 2001 tax cut and now this new plan, the great bulk of the actualâ¨tax cut income is not now, not this year or not next year, but, you know, fiveâ¨years or more in the future, which means that unless you imagine that peopleâ¨are sitting down and saying, `Well, if I look at clause 33 of the new Tax Cutâ¨Act, that means that in the year 2009, I'm going to have more money, so Iâ¨think let's go out and buy a new refrigerator now,' which people don't reallyâ¨do, then it's very hard to see what good it does the economy right now.â¨â¨GROSS: Who do you think are the winners and losers with President Bush'sâ¨proposed economics plan?â¨â¨Prof. KRUGMAN: Oh, that's easy. I mean, consistently, incrediblyâ¨consistently, these plans keep on providing big tax cuts to people who makeâ¨more than 300,000 a year. And by--they provide very little--typically, youâ¨know, pennies a day--to the median family and, you know, very little at theâ¨lower end of the income distribution, nothing at all for the poor. Byâ¨creating future deficits, by creating all this budget stringency, it ends upâ¨meaning that there'll have to be slashing, you know, of government programs,â¨means that state governments will have to raise taxes, which typically bearâ¨most heavily on the working class and the poor. So it's class warfare, toppedâ¨out in class warfare.â¨â¨GROSS: Well, the Bush administration's argument in part is that it's theâ¨people with high incomes who are paying a disproportionate amount of taxes,â¨therefore they're the people who need the tax relief.â¨â¨Prof. KRUGMAN: Well, you know, that's not an answerable question in the senseâ¨of what's right, what's the right amount that different people should pay? Toâ¨some extent, that's a value judgment. But what is interesting is that whenâ¨they make this case, they--well, let's say they lie. They always focus on theâ¨particular taxes that tend to be paid by the rich and don't focus on the taxesâ¨that are paid by the poor and the middle class. So when they--you know, ifâ¨you look at the income tax, that tends to be something that is--it's aâ¨strongly progressive tax. People with high incomes do pay a large share ofâ¨the income tax. If you look at the payroll tax, that's actually regressive.â¨People with lower incomes pay a higher share of their income than people withâ¨higher incomes.â¨â¨If I were to say, well, we're only going to cut taxes on yachts, and if youâ¨look, taxes on yachts are overwhelmingly paid by very rich people, so, youâ¨know, it's unfair to tax them so heavily. You can see what they're doing isâ¨they're loading the argument, and what's interesting is that the argumentâ¨keeps on shifting. The answer is always the same: tax cuts for rich people,â¨but one year it's for short-run stimulus, the next year it's for long-runâ¨growth, the next year it's because it's unfair to tax the rich so heavily.â¨Different rationales, always the same answer.â¨â¨GROSS: What programs are taking the biggest hits with the tax cuts thatâ¨President Bush has proposed?â¨â¨Prof. KRUGMAN: Well, I think the first thing to say is that we haven't yetâ¨seen the big hits. There's a tremendous amount of pushing the consequencesâ¨into the future. So it you really look at what's happened so far, we've seenâ¨a budget surplus of $230 billion turn into a deficit that, you know, theâ¨administration is saying will be 300 billion and independent analysts areâ¨saying 400 billion. Those deficits will eventually have to be met byâ¨something, either future tax increases or program cuts or some mix of the two.â¨So if you actually ask `Where are the cuts so far?' they're not too visible.â¨What they've been doing is a lot of nickel-and-diming on various things,â¨everything from pay increases to the military, which have been scaled back, toâ¨spending on homeland security, which has been remarkably small, to raisingâ¨rents for the poor as part of the change in housing policy. But if youâ¨actually look, the cuts so far are a tiny fraction of--the spending cuts soâ¨far are a tiny fraction of the tax cuts. The really big stuff is going toâ¨come later, and I presume that the Bush team is thinking that it'llâ¨actually--they'll come on someone else's watch.â¨â¨GROSS: What are some of the clues to what might be affected most in theâ¨future when we're deeper into the deficit?â¨â¨Prof. KRUGMAN: Well, they're already talking about major overhaul of Medicareâ¨and Medicaid. I think that's probably the biggest thing. We're talk--a lotâ¨of what is now an entitlement would probably cease to be an entitlement. Thatâ¨is, there would be a certain amount of medical care that you would get, butâ¨beyond that, you're on your own. And so, you know, that's where the big bucksâ¨are, and I think they know that.â¨â¨GROSS: But that's not how the president is describing it. He's saying thatâ¨we'll be better off because we'll have prescription drugs covered.â¨â¨Prof. KRUGMAN: Yeah, well, it's--I have to say, one thing that we have toâ¨realize now is that experienced Bushologists(ph) have gotten used to the ideaâ¨that whenever the president promises something, you say, `OK, that's the bait.â¨Where's the switch?' and it's almost without fail. If it sounds like a goodâ¨thing, then you start to look and say, `Wait. Where's the catch? What'sâ¨going on here?' And in this case, it turns out that prescription drugâ¨coverage is supposed to come with a requirement that you enroll in an HMO,â¨which might be a bigger thing, basically saying that Medicare as we knowâ¨it--you have to step out of the Medicare system if you want to get theâ¨prescription drug coverage. So there are some generous-sounding words fromâ¨the administration, but when you look underneath, it almost always turns outâ¨that we're actually talking about a cutback.â¨â¨GROSS: And the states--most of the states now are in dire financial straits.â¨How, if at all, does that connect with the Bush economic plan or with theâ¨budget deficit?â¨â¨Prof. KRUGMAN: Well, the first thing to say is that economically, this is aâ¨very big thing in the short run. Right now, the state governments areâ¨considering, or probably going to implement, a combination of tax increasesâ¨and spending cuts that amount in total to something like $100 billion over theâ¨next year, which swamps any short-term stimulus from the Bush economic plan.â¨So if you actually take US government as a whole--federal, state andâ¨local--we're actually going to be doing what we said we'd never do again afterâ¨the Great Depression, which is having a fiscal contraction in the face of aâ¨depressed economy. And it's very intimately connected to the budget, to theâ¨tax plan. What the US government normally does in times of economic distressâ¨is it does some revenue sharing. It helps out state and local governments soâ¨that they aren't obliged to cut back, you know, fully, that they get a fairâ¨bit of help. And this is the worst state fiscal crisis since the 1930s.â¨â¨GROSS: Why are so many states in such a bad financial mess?â¨â¨Prof. KRUGMAN: Well, it's a little bit--it's a mixture of things. A lot ofâ¨it is the same reason why the federal government has us moved so suddenlyâ¨into--from record surplus to record deficit. At the end of the stock marketâ¨bubble, the depressed economy cuts into revenues at all levels of government.â¨The other thing is that a lot of state governments treated the good years ofâ¨the late '90s, when the revenue was pouring in, as if they were a permanentâ¨condition. They didn't set aside money for a rainy day. They passed tax cutsâ¨that were not affordable. There was some increase in spending, a little bitâ¨of our runaway spending, although actually, if you look at the numbers,â¨they're not very impressive on the spending side. Basically, it's--if youâ¨like, you could say that states did Bushonomics before Bush came in, that theyâ¨said, `Ooh, we've got a surplus. Let's give it away with tax cuts.' and thenâ¨when the conditions turned sour, they find themselves in deep, deep trouble.â¨â¨GROSS: And the federal government isn't going to help them out of thatâ¨trouble.â¨â¨Prof. KRUGMAN: That's right. Just before this latest Bush package wasâ¨announced, all of the newsletters, the speculation was, well, you know, theâ¨Democrats want 75 billion in aid to the states, but, you know, Bush willâ¨probably give them 30 billion. The number came out and it was zero, zeroâ¨dollars and zero cents, and that was--absolutely shocked. That's a--in a way,â¨it's unprecedented. I don't think you can look--well, there hasn't been aâ¨state fiscal crisis this severe since the 1930s, but even in much less severeâ¨cases, there's been at least some help from the federal government, and it'sâ¨amazing that they're providing zero this time.â¨â¨GROSS: So what are some of the services or other things that we might lose asâ¨the states get deeper into trouble?â¨â¨Prof. KRUGMAN: Well, a lot of cancellation of infrastructure. We're notâ¨going to get a lot of road-building or road repair or hospitals or schools. Aâ¨lot of stuff is going to be postponed in an attempt to save money now. Theâ¨Medicaid--whenever you talk about state budgets, medical care for the poorâ¨always comes up. There's going to be a lot of tightening of criteria, a lotâ¨of exclusion of as many people as possible, with the brunt of that, at leastâ¨according to the things I've been reading, falling on children. Basically, aâ¨lot of poor children are not going to be getting medical care. So it's nastyâ¨stuff. It's harsh and it's cruel.â¨â¨You might argue that states overspent, but the things they're going to cutâ¨back on are not pork projects. The things they're going to cut back on areâ¨medical care for poor children and road maintenance, not good stuff.â¨â¨GROSS: If you're just joining us, my guest is Paul Krugman. He's a columnistâ¨for The New York Times and a professor of economics and international affairsâ¨at Princeton University.â¨â¨Let's take a short break here, and then we'll talk some more. This is FRESHâ¨AIR.â¨â¨(Soundbite of music)â¨â¨GROSS: We're talking about President Bush's economic plan. My guest is Paulâ¨Krugman. He's a columnist for The New York Times and a professor of economicsâ¨and international affairs at Princeton University.â¨â¨Let's look at the middle class for a second. Looking at the Bush economicâ¨plan and what's happening with the states, what would you say the middle classâ¨stands to gain in the next few years and what do you think the middle classâ¨stands to lose?â¨â¨Prof. KRUGMAN: Well, `middle class' is a funny term in the US. The range ofâ¨people in the US who think that they're middle class runs from around 20,000â¨a year to 300,000 a year, and so when we talk about the middle class, it's aâ¨problematic term. If you actually look at what's going to happen to familiesâ¨near the middle of the income distribution, you know, the median family, theâ¨answer is that they will, all told, get a few hundred dollars a year,â¨typically, in tax cuts out of the Bush plan, not more than that, and that onâ¨the other hand, they will probably face state and local tax increases thatâ¨will take away quite a lot of that, maybe all of it, and they'll see a cutbackâ¨in state and local services, which will further worsen the situation. Andâ¨then there's all this postponed pain, all of these deficits that will forceâ¨drastic things to happen, basically, in the 2010s, in the next decade, whichâ¨will, of necessity, mean big cuts in the great middle-class entitlementâ¨programs, in Social Security and Medicare. So ultimately--I think basically,â¨if you work it through, you'll probably have to be making 250 or 300,000 aâ¨year to be at all likely to be a winner when the dust settles.â¨â¨GROSS: So you're painting a pretty dire picture: tax cuts now resulting inâ¨an increasingly huge deficit, cutting back of entitlements, cutting back ofâ¨other services and then, in a few years, having to raise taxes again anyways.â¨â¨Prof. KRUGMAN: Yeah. I mean, anyone who's actually sat down with theâ¨numbers, tried to figure out how this tax cut is affordable, ends up shakingâ¨his head or, you know, banging it down against the table because the numbersâ¨just don't work. Nothing short of really a gutting of the New Deal and Greatâ¨Society institutions, nothing short of really a drastic cutback in Socialâ¨Security and Medicare as we know them would make room for the kind of tax cutsâ¨that the Bush administration is now pushing, so something drastic has to give.â¨â¨You know, there are people who will argue that that's what we should do, butâ¨the thing is to say is that the Bushies have never made that case. They'veâ¨never said, `Well, we need these tax cuts and, because it's so important toâ¨have tax cuts, we propose to drastically cut back on Social Security andâ¨Medicare in a few years.' They've made it seem as if the stuff is, you know,â¨perfectly reasonable and affordable without any great disruption in theâ¨American political system, social system as we know it, and it isn't.â¨â¨GROSS: Now the Bush administration is proposing big tax cuts at the same timeâ¨that it's pushing for war with Iraq. What is your opinion of lowering taxesâ¨as we march to war?â¨â¨Prof. KRUGMAN: Well, there's an issue of simple revenue. You know, this warâ¨is going to cost something. They haven't given us any estimates, not in theâ¨budget, but it's certainly going to cost something. The other thing is, it isâ¨kind of weird. Isn't war supposed to be a time of shared sacrifice? Justâ¨psychologically, it's a very strange situation, where you declare war, youâ¨declare it's going to be tough, it's going to be hard, where you actually cutâ¨back, you know, on social programs because of war, and at the same time,â¨millionaires get big tax cuts. This is unprecedented.â¨â¨GROSS: What is the Bush administration proposing for funding the war? Whereâ¨is it proposing the money will come from?â¨â¨Prof. KRUGMAN: Oh, the bond market. I mean, they have obviously not made anyâ¨move to raise revenue. They have not made any serious spending cuts. They'veâ¨made, you know, painful spending cuts, painful to some poor, defenselessâ¨people, but those are--in terms of the amounts of money, they're token, soâ¨it's really not going to make a significant difference. The idea is to borrowâ¨for the war, which is--you always do borrow for wars to some extent, but theyâ¨seem to have no notion that there's ever any point at which you have to beâ¨prepared to pay something for it.â¨â¨GROSS: The Bush administration has offered Turkey tens of billions of dollarsâ¨in return for its help and its endorsement of war with Iraq. What do youâ¨think of when you look at the Bush administration's domestic economic plan andâ¨the amount of money that it's offering Turkey?â¨â¨Prof. KRUGMAN: Well, the numbers on Turkey--again, you know, you have to haveâ¨some grasp of the sheer scale, both of the US budget and the Bush tax cuts.â¨If you look at all the tax cuts that are proposed just in this latest round,â¨they come out to something like $1.5 trillion. The money that we're giving toâ¨Turkey, as best I can make out, actually turns out to be about $6 billion inâ¨cash, so it's not really a large thing compared with the tax cuts. What'sâ¨interesting is that it is a large sum compared to the amounts that theâ¨administration is spending on homeland security. It's interesting that theâ¨Turks get their money right away while the firefighters and the policemenâ¨haven't yet seen anything. It's also interesting that the Turks--it turns outâ¨the sticking point was not the price, but the timing. The Turks wanted, andâ¨got, immediate delivery, cash on the barrelhead. You sort of have theâ¨impression that they don't trust this administration to make good on aâ¨promise. They want the money now.â¨â¨GROSS: If we go to war with Iraq, what do you think that might mean for theâ¨American economy? A lot of Americans remember World War II, and World War IIâ¨actually got us out of a depression. What would an Iraq war economy meanâ¨today?â¨â¨Prof. KRUGMAN: This is not a big war. Whatever else we think, it's not--youâ¨know, World War II at the peak, the US was spending more than 40 percent ofâ¨GDP on the war effort. That would be the equivalent of $4 trillion a yearâ¨today. Even high estimates of the war in Iraq say we might be spending one orâ¨two hundred billion per year. So the war is not going to be a big thing,â¨either negative or positive, in terms of the spending on it.â¨â¨I think the question you have to ask is: What are the collateral effects?â¨What kind of other things happen? And is this going to--some people thinkâ¨it's going to lead to plunging oil prices, which is a good thing, but I'veâ¨tried to figure out that and I can't see it actually in the data. Otherâ¨people think it's going to lead to unrest and uncertainty all around theâ¨world, which is probably a much more serious negative.â¨â¨I think it's actually probably overrated as an economic issue in bothâ¨directions. The greatest superpower the world has ever known is proposing toâ¨take on a fifth-rate power someplace else. This is not going to be a bigâ¨thing in terms of the economy.â¨â¨GROSS: America has been losing jobs, and much of our manufacturing is doneâ¨overseas. Floyd Norris, who writes for The New York Times, your paper, wroteâ¨in December that the economy now supports 2.2 million fewer private-sectorâ¨jobs than it did when President Bush was sworn into office. Are there ways ofâ¨creating more jobs now that you can see?â¨â¨Prof. KRUGMAN: Oh, I think it would be extremely easy. The ingredients of aâ¨sensible recovery plan are fairly obvious. You go out there and provide aidâ¨to the states so they don't have to do all these cutbacks. You provide moneyâ¨to people who are likely to spend it through rebates to individuals, not toâ¨rich people. And probably you also have some acceleration of things theâ¨government needs to spend money on. I mean, we could create a whole lot ofâ¨jobs very justifiably with the homeland security projects. You know, youâ¨could have a Franklin Roosevelt-style WPA in the name of defending theâ¨country. But all of that stuff is apparently out of bounds politically.â¨â¨GROSS: Why do you think it is?â¨â¨Prof. KRUGMAN: I think the ruling party, the party that controls Congress andâ¨the White House, is dedicated to the idea that being nice to poor people isâ¨bad and being nice to rich people is good. They just cannot wrap their mindsâ¨around the idea that we've actually got a situation in which beingâ¨compassionate is also practical.â¨â¨GROSS: Paul Krugman is a New York Times columnist and a professor ofâ¨economics and international affairs at Princeton University. We'll talk moreâ¨about the economy in the second half of the show. I'm Terry Gross, and thisâ¨is FRESH AIR.â¨â¨(Soundbite of music)â¨â¨(Announcements)â¨â¨GROSS: Coming up, we continue our conversation about the Bushâ¨administration's proposed tax cuts with New York Times columnist Paul Krugman.â¨Then syndicated columnist Bruce Bartlett explains why he supports the taxâ¨cuts. He was an economic adviser for President Reagan and the first Presidentâ¨Bush.â¨â¨(Soundbite of music)â¨â¨GROSS: This is FRESH AIR. I'm Terry Gross, back with Paul Krugman, a Newâ¨York Times columnist and a professor of economics and international affairs atâ¨Princeton University. We've been talking about why he opposes the president'sâ¨tax cut plan.â¨â¨What do you think the odds are that the Bush economic plan is going to goâ¨through Congress?â¨â¨Prof. KRUGMAN: I have no idea. I mean, sometimes when I look at the swingâ¨moderates, people like the moderate Republicans like Susan Collins or theâ¨right wing of the Democratic Party, I think of them as being like Charlieâ¨Brown with Lucy and the football. You know, no matter how many times Lucyâ¨snatches away the football as he tries to kick it, he still falls for itâ¨again. And I suspect that they may do it, you know, one more time, that theyâ¨may once again believe that this is actually a sensible plan that Bush isâ¨proposing and go for it. But they're going to be yelling, `Argh!' just likeâ¨Charlie Brown. It happens again and again.â¨â¨GROSS: You're critical of what the president projects will be the averageâ¨benefit, the average tax cut for a middle-class American. In one of youâ¨columns, you basically told a joke that gave an interesting definition ofâ¨average. Would you tell that for us?â¨â¨Prof. KRUGMAN: Sure. It's--a liberal and a conservative are sitting in aâ¨bar. Bill Gates walks into the bar. The conservative says, `Yippee! We'reâ¨rich. The average person in this bar is now worth a billion dollars.' Andâ¨the liberal says, `What are you talking about? Yeah, sure, Bill Gates hasâ¨walked in and that raises the average in the bar by a billion dollars. Butâ¨that doesn't make you or me any richer.' And the conservative says, `Ha! Iâ¨see you're still practicing the discredited politics of class warfare.'â¨â¨That really does--that is the way it is. I mean, the typical--I think we canâ¨say the generic Bush plan on anything delivers huge benefits to people at theâ¨top; not very much to most of the rest of the population. Then they go outâ¨and say, `Well, look, the average person gets a benefit which is X, $1,000,â¨$1,500, whatever,' when, in fact, that's just like saying, `Well, there are 30â¨people in the bar and if you divide Bill Gates' wealth by 30, then it's stillâ¨a lot of money.' But, in fact, the other 29 people in the bar don't get anyâ¨of that.â¨â¨GROSS: When you look at the Bush economic plan, does it strike you asâ¨politics as usual or does it strike you as something beyond that?â¨â¨Prof. KRUGMAN: No, this is not politics as usual. I mean, I haven't studiedâ¨all previous presidencies, but I don't think there's been anything like thisâ¨level of--well, let me be blunt. I think the level of irresponsibility andâ¨dishonesty is unprecedented. There's been nothing like this before. Noâ¨candidate has ever misrepresented the content of his policies as much as Bushâ¨did in 2000, and no president has ever done as much as Bush has done since.â¨And I can't think of a case before where a US administration has pursuedâ¨policies that seem so obviously to be heading us in the direction of fiscalâ¨catastrophe.â¨â¨GROSS: If you were the economics czar for President Bush, what advice wouldâ¨you be giving him?â¨â¨Prof. KRUGMAN: Oh. Well, it depends on what his goals are, right? I mean, Iâ¨don't--in terms of my goals, I would scrap the whole thing and let's startâ¨over. Look, here's a picture of what I think is happening in the economyâ¨right now. We have a short-run problem which is a sort of hangover from theâ¨excesses of the bubble years. There was too much investment in some things,â¨too much corporate debt. Business investment's going to stay depressed for aâ¨while. So we need a bridge over this depressed period. We need to sustainâ¨spending, which means aid to states and local governments, money in the handsâ¨of working-class Americans who are likely to spend it, and federal spending onâ¨homeland security and other things, all to support demand until businesses areâ¨ready to invest again.â¨â¨Longer term we have what is now looking like a very serious fiscal situation.â¨So we really should be--we shouldn't have done that tax cut in 2001, and weâ¨certainly shouldn't do anymore long-term tax cuts. So we should be rollingâ¨all of that back. And then we should be thinking about what kinds of choicesâ¨we need to make about Social Security and Medicare to assure their long-runâ¨stability.â¨â¨It's a kind of, you know, pump money into the economy now, but let's also doâ¨something to make sure that the federal government can actually pay its billsâ¨in the decades to come. Not very complicated, actually, but as I say, againâ¨and again you come up with the reality that anything sensible seems to beâ¨completely ruled out politically these days.â¨â¨GROSS: How do you think the possibility of war with Iraq is affecting theâ¨amount of attention the Bush economic plan is getting in Congress and from theâ¨American public?â¨â¨Prof. KRUGMAN: Oh, I think it's tremendously distracting. I'm having theâ¨personal experience that when I do write a column that is purely aboutâ¨economic issues, I actually get some letters that say, you know, `We don'tâ¨care right now,' and in general just a huge drop-off of interest. And I thinkâ¨that's general. It's very hard to focus on any of this stuff with warâ¨occupying the foreground of everyone's attention.â¨â¨GROSS: Do you think it's important to focus on it in spite of war?â¨â¨Prof. KRUGMAN: I don't know. I guess to some extent I'm just a normal memberâ¨of the public, and I also am rather obsessed with this war right now. It is aâ¨little bit hard to go on about, you know, long-term revenue effects of the newâ¨savings accounts when we may be talking about bombs any day now. Let me say,â¨though, I actually regard this all--as being in some sense all about peace.â¨You know, I think that the style of policy that I decry in the Bush-ese whenâ¨it comes to economics is also visible in their foreign policy. So I don'tâ¨actually view these as entirely separate issues.â¨â¨GROSS: What's the connection in your mind?â¨â¨Prof. KRUGMAN: Both a kind of level of irresponsibility--you know, we'reâ¨going to do what we want to do and never mind the consequences--and aâ¨consistent unwillingness to level with the public.â¨â¨GROSS: Well, Paul Krugman, I want to thank you very much for talking with us.â¨â¨Prof. KRUGMAN: Well, thank you.â¨â¨GROSS: Paul Krugman is a New York Times columnist and a professor ofâ¨economics and international affairs at Princeton University.â¨â¨Coming up, syndicated columnist and economic adviser Bruce Bartlett tells usâ¨why he supports the president's tax cuts.â¨â¨This is FRESH AIR.â¨â¨(Soundbite of music)â¨â¨* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *â¨â¨Interview: Bruce Bartlett on Bush's tax cut planâ¨TERRY GROSS, host:â¨â¨Unlike our previous guest, Paul Krugman, Bruce Bartlett supports Presidentâ¨Bush's tax cut plan. Bartlett is a syndicated columnist who's published inâ¨the Washington Times, the New York Post and The Detroit News. He's a seniorâ¨fellow at the National Center for Policy Analysis, and he was an economicâ¨adviser in the administrations of President Reagan and the first Presidentâ¨Bush.â¨â¨The president proposed steep tax cuts when we had a budget surplus, and nowâ¨he's proposing deep tax cuts now that we have a huge deficit. Do you thinkâ¨his rationale for the tax cuts has changed?â¨â¨Mr. BRUCE BARTLETT (National Center for Policy Analysis): No, I don't thinkâ¨so. I think that the things he has proposed in his budget for 2004, which isâ¨the one that was just proposed in January, are really more thought of asâ¨fundamental tax reforms than stimulus measures. Stimulus measures would onlyâ¨be justified under the conditions of a very deep economic downturn.â¨â¨But fundamental tax reforms, I think, are justified under any circumstances.â¨Even if the economy were growing 10 percent a year and we had, you know, 1â¨percent unemployment, I still think that many of the things that the presidentâ¨has proposed such as eliminating the double taxation of corporate profits,â¨increasing incentives for individuals to save for the future--I think theseâ¨are things that are always justified because they raise the long-term growthâ¨rate of the economy, raise productivity and thereby raise the standard ofâ¨living.â¨â¨GROSS: Now you don't think that this is meant to be an economic stimulus, butâ¨hasn't President Bush said that it would be?â¨â¨Mr. BARTLETT: Well, he sort of talks around it. I think that there's noâ¨question that he's trying to use the current economic difficulties as aâ¨political, you know, opportunity to get some things passed that perhaps heâ¨would like to have done under any circumstances. But I don't think he'sâ¨really emphasized the stimulative impact of his plans so much as just theâ¨rightness of the policies.â¨â¨GROSS: The critics of the Bush administration say that his tax plan is a planâ¨to benefit the rich and not really help the poor or the middle class. Agree?â¨Disagree?â¨â¨Mr. BARTLETT: Well, I think if you look at tax policy just in terms of howâ¨people pay taxes, that may be a justifiable position. But if you look at taxâ¨policy in terms of changing people's incentives and changing the economicâ¨conditions of the economy, then I think it's not. Because higher saving andâ¨higher investment, which quite frankly has to be done by the wealthy becauseâ¨they're the ones who have the ability to do it, they're the ones who have theâ¨ability to create jobs and do the investment, I think that the ultimateâ¨beneficiaries are really the poor and the middle class because it leads to anâ¨increase in the number of jobs, an increase in productivity, an increase inâ¨wages so that the ultimate beneficiaries, I think, of higher investment andâ¨saving are really the poor and the middle class.â¨â¨GROSS: Say, though, when the corporations make more money because of the newâ¨incentive for investment, they decide to keep a lot of those extra profitsâ¨instead of creating more jobs.â¨â¨Mr. BARTLETT: Well, the money has to go somewhere. I mean, if they keep theâ¨money, they either have to do one of two things; they have to either pay outâ¨in dividends, and the president is proposing a policy that will encourage themâ¨to pay out more dividends that people can then reinvest, or they have toâ¨invest the money either in their own productive capacity or they have to buyâ¨stocks or bonds or something else. The money just doesn't sit in a mattress.â¨So the money will be saved. It's the aggregate amount of national saving thatâ¨really matters in terms of our ability to increase productivity, and itâ¨doesn't really matter how that is done.â¨â¨GROSS: How do you justify cutting taxes at a time when we're already facing aâ¨huge deficit? Cutting taxes means the deficit's going to keep getting bigger.â¨â¨Mr. BARTLETT: Well, I think that it's a question of how can you rationalizeâ¨not making an investment in America's future simply to maintain balance in theâ¨federal budget when all the evidence suggests that the money would simply beâ¨spent by Congress on pork barrel projects and lots of things of no particularâ¨value to the nation as a whole? So I think that the premise that if we didn'tâ¨cut taxes, then the deficit would be lower by an equal amount is just not aâ¨valid premise. The Congress would simply spend the money.â¨â¨GROSS: The premise of your answer is that any money that's spent is going toâ¨be on worthless pork barrel projects. But isn't it true that homelandâ¨security isn't adequately funded and that the future of Medicare and Socialâ¨Security are in jeopardy because the deficits are going to be so high and theyâ¨will be growing even higher at a time when the baby boom is retiring, and aâ¨lot of Social Security and Medicare is supposed to be paid out then, who'sâ¨going to handle all of that and what's that going to mean for the futureâ¨generations?â¨â¨Mr. BARTLETT: Well, I don't see any evidence that homeland security isâ¨underfunded. I mean, you can always spend more on such things. There's noâ¨limit to how much you can spend. You just have to draw the line somewhere atâ¨what seems to be reasonable. And I think that the administration's approachâ¨to this is reasonable. As far as Social Security and Medicare are concerned,â¨I think that those are two programs that are fundamentally unstable and doâ¨need to be fundamentally restructured.â¨â¨But I don't think that--but I think one of the best ways of allowing us toâ¨carry the burden that those programs impose upon us is to have the fastestâ¨possible economic growth. And I think that increasing the total size of theâ¨economy by lowering taxes in such a way that will encourage faster economicâ¨growth is probably the best thing we can do today that will make thoseâ¨problems more bearable.â¨â¨And I don't think one's a substitute for another. I don't think that justâ¨running large surpluses today really makes those problems go away because theâ¨problems are so great, they're so large that you would have to run, you know,â¨massive surpluses year after year after year after year to be able to pay theâ¨promises that have been made in those programs, which simply cannot be funded.â¨They have to be restructured, and anything that puts off that day of reckoningâ¨I think is ultimately not in the public interest.â¨â¨GROSS: You said that there's no real evidence that homeland security isâ¨underfunded. A lot of critics say that it has been, and also many states areâ¨complaining that they just don't have enough money to do what they think needsâ¨to be done for homeland security on the state level. And they don't feel likeâ¨they're getting anything close to adequate help from the federal government.â¨â¨Mr. BARTLETT: Well, look, the states are whiners. They always complain thatâ¨they never have enough resources. And that is true whether times are good orâ¨times are ill. And it was true before September 11 and it's true now. Theâ¨evidence is that when times were flush, the states grossly overspent, or atâ¨least some of them did, on a lot of wasteful projects that were designedâ¨mainly for the purpose of ensuring the re-elections of the politicians inâ¨charge of those states. And of course any time they can get the federalâ¨government to pay some of their expenses for them, they're going to say thatâ¨that's what they need.â¨â¨All I can say is that I think you have to--you just cannot take these thingsâ¨at face value. You have to look at them very carefully and evaluate theseâ¨needs in terms of--to the extent that they are over and above what the statesâ¨would otherwise have to be responsible for. And I think that they're alwaysâ¨looking for a handout from Uncle Sam and a way to get the federal governmentâ¨to fund the things that they otherwise would be funding anyway.â¨â¨GROSS: Many states are in real bad economic straits right now, and at theâ¨same time that they're trying to develop new homeland security projects. Manyâ¨states are cutting things ranging from education to the arts to funding forâ¨welfare, funding for Medicaid. And a lot of critics of the Bushâ¨administration economic plan say that it's likely many states will end upâ¨raising their taxes in order to stay above water and that those raises inâ¨state taxes will compensate for any benefits that the middle class has gainedâ¨through President Bush's tax cuts, that it will...â¨â¨Mr. BARTLETT: Well, I'm not sure if that's true. I mean, there was a caseâ¨just recently in Oregon where they had a state referendum on, `Do you want usâ¨to cut state spending or do you want us to raise taxes?' And Oregon is notâ¨what you'd ordinarily consider a conservative state, and the overwhelming voteâ¨was to cut spending. So I think that what got these states in trouble isâ¨during the economic bubble of the late 1990s, when times were flush, theyâ¨spent way more money than they should have spent and now they're paying theâ¨piper. So I think that bailing them out is really unfair to those states thatâ¨were responsible and kept spending down and didn't greatly increase spendingâ¨just because they had a temporary increase in revenues. And those states areâ¨very much in--doing just fine.â¨â¨GROSS: Several historians have pointed out that it's unprecedented for theâ¨United States to cut taxes as it faces war. Usually taxes are raised in timeâ¨of war. In fact, that's how the income tax was begun, to help pay for war.â¨Do you have any reservations about cutting taxes at the same time we're facingâ¨war with Iraq, an expensive one?â¨â¨Mr. BARTLETT: No, I don't. I think that the wars of the past and the wars ofâ¨the future are so radically different there's really no comparison. I thinkâ¨that the wars of today are fought much more by professional soldiers usingâ¨high-tech weaponry that is already in existence at the time the war breaksâ¨out, and we don't really have the need for mass mobilization for buildingâ¨thousands of tanks and thousands of airplanes, as was the case in World War IIâ¨and Korea and to a lesser extent in Vietnam.â¨â¨I think that today, you know, the high-tech weaponry we have is able to doâ¨multiples of the kinds of damage that previous wars' weapons did, and I thinkâ¨our soldiers are so well-trained and so professional. So I really think thatâ¨the main thing in terms of fighting future wars is to be extremelyâ¨well-prepared before the war even begins. That is to say all the spending onâ¨the war comes long before the actual outbreak of hostilities, and I think thatâ¨was true in the Gulf War and I think that's true in this war.â¨â¨GROSS: So you don't think we'll have any problem at all funding war with Iraqâ¨and the rebuilding of Iraq?â¨â¨Mr. BARTLETT: Well, I wouldn't say no trouble at all, but keep in mind thatâ¨one of the problems with Iraq right now is that United Nations sanctions haveâ¨severely limited that country's oil output. And under a democratic and freeâ¨Iraq, even if there's some considerable damage to their oil industry, I thinkâ¨that new investment and improvements in their technology and elimination ofâ¨sanctions would allow that oil output to increase several times, perhaps fromâ¨one million barrels a day to three or four or five million barrels a day. Andâ¨I think that that will provide more than enough revenue to allow Iraq toâ¨rebuild itself without the necessity of a huge amount of foreign aid from theâ¨United States. And I also think that our allies will undertake a great dealâ¨of the burden of peacekeeping in that country, so that I think our main job isâ¨regime change, and I think that the economic costs beyond that probably won'tâ¨be nearly as high as most people think they will.â¨â¨GROSS: My guest is Bruce Bartlett, a syndicated newspaper columnist and aâ¨senior fellow at the National Center for Policy Analysis. We'll talk moreâ¨after a break. This is FRESH AIR.â¨â¨(Soundbite of music)â¨â¨GROSS: Bruce Bartlett is my guest. He's a senior fellow at the Nationalâ¨Center for Policy Analysis. He's a syndicated newspaper columnist. Hisâ¨column is carried in the Washington Times, New York Post and Detroit News. Heâ¨has served as an economic adviser in the administrations of Ronald Reagan andâ¨George Bush Sr.â¨â¨You said earlier that one of the reasons why you support the president's taxâ¨plan is that you think it's basically a restructuring of the tax code. How doâ¨you think the code should be restructured? Like proportionately do you thinkâ¨that the wealthy are paying too much taxes and do you favor a progressive tax?â¨Like what is the right proportion for the people in the upper bracket to pay?â¨â¨Mr. BARTLETT: Well, what I think is we ought to structure our tax systemâ¨towards taxing consumption, because I think that that's a better measure ofâ¨what people take out of society, and get away from taxing saving andâ¨investment, because saving and investment add to the economic pie. And evenâ¨though the people who make the saving and investment get a return on thatâ¨investment, most of the returns go to people that they don't have anything toâ¨do with; that is, the workers and people of that sort who are employed andâ¨have wages from the investments that are made. So I would like for us to getâ¨away from taxing saving and investment and moving more towards aâ¨consumption-based tax system.â¨â¨And I think that's the most important reform we could possibly make, and Iâ¨think that the president's proposals move us in that direction by getting ridâ¨of the double taxation of corporate profits, moving us towards expensing ofâ¨corporate investments, allowing people to save more without having to payâ¨taxes on the return to those investments. I think these are all incrementalâ¨movements in the direction that I would like to see the country going.â¨â¨GROSS: A lot of experts say that a consumption tax is always much moreâ¨difficult for the poor and the middle-class than it is for the wealthy. It'sâ¨a tax that's skewed to favor the wealthy and hurt the poor and middle class.â¨Also, if you're taxing consumption and you're making it that much moreâ¨difficult for the poor and the middle class to afford the things that theyâ¨want or need, can't that hurt the economy because it's an anti-stimulus, itâ¨makes it harder to buy things for the average person?â¨â¨Mr. BARTLETT: Well, that would be true if you were talking about aâ¨traditional type of direct tax on consumption, such as a retail sales tax,â¨such as those that we have at the state and local level or a value-added taxâ¨such as the Europeans have. What I'm talking more about is something thatâ¨economists call consumed income tax. Think of it this way: There are onlyâ¨two things you can do with your income. You can either save it on the oneâ¨hand or you can consume it on the other. So if you eliminate taxation onâ¨saving, you have, per se, a consumption tax. But you can still haveâ¨progressive tax rates if you want to; you can still relieve the poor throughâ¨exemptions if you want to and still have high rates on the wealthy. And itâ¨doesn't necessarily have to be more regressive.â¨â¨What it would do is it would reward those people who save and invest at theâ¨expense of those people who go into debt and who live beyond their means.â¨â¨GROSS: Critics of the president's proposals to change retirement accounts,â¨and this would include being able to put more money into retirement accountsâ¨without paying taxes on that money. And, you know, the ceiling for the amountâ¨of money you could put into those retirement accounts would be raised.â¨Critics say that that's a really nice thing for people who can afford to saveâ¨more, but that most people are barely saving anything and they can't afford toâ¨save any more than they already save. So giving them incentives to save moreâ¨by decreasing the taxes on those savings isn't going to mean a thing for thoseâ¨people who have no money to save in the first place, which is a lot of people.â¨â¨Mr. BARTLETT: Well, one reason why people don't have as much money to save asâ¨they would like to have is because they pay so much in taxes, so it's sort ofâ¨a chicken and egg problem. Now I think that a lot of people, if they thoughtâ¨that they could get tax-free retirement savings, as president's proposed withâ¨his savings incentives, I think that they could save in lots of ways more thanâ¨they do now. I mean, people in impoverished Third World countries in someâ¨cases save more than many Americans do. They're simply reacting to theâ¨incentives that they have been given in terms of our tax system. So I thinkâ¨that a lot of is incentives and you want to encourage people to change theirâ¨behavior and not go into debt so much because there will be more benefit toâ¨them from saving, so I think that--again, it's sort of a chicken and eggâ¨problem, and I think the president has proposed a reasonable way of trying toâ¨move us in the direction I think we all want to go.â¨â¨GROSS: Well, I want to thank you very much for talking with us.â¨â¨Mr. BARTLETT: Thank you.â¨â¨GROSS: Bruce Bartlett is a syndicated newspaper columnist and a senior fellowâ¨at the National Center for Policy Analysis. Earlier, we heard from New Yorkâ¨Times columnist Paul Krugman, who's a critic of the president's tax cut plan.â¨â¨(Credits)â¨â¨GROSS: I'm Terry Gross.