'New York Times' Columnist Paul Krugman

DATE February 25, 2003 ACCOUNT NUMBER N/A
 TIME 12:00 Noon-1:00 PM AUDIENCE N/A
 NETWORK NPR
 PROGRAM Fresh Air

Interview: Paul Krugman discusses President Bush's tax cut plan
TERRY GROSS, host:

This is FRESH AIR. I'm Terry Gross.

Although war with Iraq is occupying world attention, many Americans say the
most important issue to them is the economy. President Bush says his tax cut
plan will revive the economy. His critics say the plan will primarily help
the wealthy while getting us into a potentially catastrophic level of debt.
The president says Americans would receive an average tax reduction of $1,083,
but his use of the word `average' has been contested. For example, according
to a study by the Tax Policy Center of The Brookings Institution and the Urban
Institute, if you compare the average tax reduction within different income
brackets, you see a different story. The study says the average tax cut for
people with incomes over $1 million would be about $90,000. A $200,000 income
would get about a $12 1/2 thousand break. The tax cut with incomes of 40 to
$50,000 would be about $380.

We're going to hear from guests on each side of the tax debate, starting with
Paul Krugman. He's a New York Times columnist who's also a professor of
economics and international affairs at Princeton University. He says the Bush
plan won't be an effective economic stimulus. The tax cuts don't go into
effect quickly enough for that.

Professor PAUL KRUGMAN (Princeton University): If your objective is to put
money in people's pockets and, you know, help the economy now, then you want a
tax cut that delivers a big bang into the hands of people who are likely to
spend it, and you want to do it in the next year or two. If you look at both
the original 2001 tax cut and now this new plan, the great bulk of the actual
tax cut income is not now, not this year or not next year, but, you know, five
years or more in the future, which means that unless you imagine that people
are sitting down and saying, `Well, if I look at clause 33 of the new Tax Cut
Act, that means that in the year 2009, I'm going to have more money, so I
think let's go out and buy a new refrigerator now,' which people don't really
do, then it's very hard to see what good it does the economy right now.

GROSS: Who do you think are the winners and losers with President Bush's
proposed economics plan?

Prof. KRUGMAN: Oh, that's easy. I mean, consistently, incredibly
consistently, these plans keep on providing big tax cuts to people who make
more than 300,000 a year. And by--they provide very little--typically, you
know, pennies a day--to the median family and, you know, very little at the
lower end of the income distribution, nothing at all for the poor. By
creating future deficits, by creating all this budget stringency, it ends up
meaning that there'll have to be slashing, you know, of government programs,
means that state governments will have to raise taxes, which typically bear
most heavily on the working class and the poor. So it's class warfare, topped
out in class warfare.

GROSS: Well, the Bush administration's argument in part is that it's the
people with high incomes who are paying a disproportionate amount of taxes,
therefore they're the people who need the tax relief.

Prof. KRUGMAN: Well, you know, that's not an answerable question in the sense
of what's right, what's the right amount that different people should pay? To
some extent, that's a value judgment. But what is interesting is that when
they make this case, they--well, let's say they lie. They always focus on the
particular taxes that tend to be paid by the rich and don't focus on the taxes
that are paid by the poor and the middle class. So when they--you know, if
you look at the income tax, that tends to be something that is--it's a
strongly progressive tax. People with high incomes do pay a large share of
the income tax. If you look at the payroll tax, that's actually regressive.
People with lower incomes pay a higher share of their income than people with
higher incomes.

If I were to say, well, we're only going to cut taxes on yachts, and if you
look, taxes on yachts are overwhelmingly paid by very rich people, so, you
know, it's unfair to tax them so heavily. You can see what they're doing is
they're loading the argument, and what's interesting is that the argument
keeps on shifting. The answer is always the same: tax cuts for rich people,
but one year it's for short-run stimulus, the next year it's for long-run
growth, the next year it's because it's unfair to tax the rich so heavily.
Different rationales, always the same answer.

GROSS: What programs are taking the biggest hits with the tax cuts that
President Bush has proposed?

Prof. KRUGMAN: Well, I think the first thing to say is that we haven't yet
seen the big hits. There's a tremendous amount of pushing the consequences
into the future. So it you really look at what's happened so far, we've seen
a budget surplus of $230 billion turn into a deficit that, you know, the
administration is saying will be 300 billion and independent analysts are
saying 400 billion. Those deficits will eventually have to be met by
something, either future tax increases or program cuts or some mix of the two.
So if you actually ask `Where are the cuts so far?' they're not too visible.
What they've been doing is a lot of nickel-and-diming on various things,
everything from pay increases to the military, which have been scaled back, to
spending on homeland security, which has been remarkably small, to raising
rents for the poor as part of the change in housing policy. But if you
actually look, the cuts so far are a tiny fraction of--the spending cuts so
far are a tiny fraction of the tax cuts. The really big stuff is going to
come later, and I presume that the Bush team is thinking that it'll
actually--they'll come on someone else's watch.

GROSS: What are some of the clues to what might be affected most in the
future when we're deeper into the deficit?

Prof. KRUGMAN: Well, they're already talking about major overhaul of Medicare
and Medicaid. I think that's probably the biggest thing. We're talk--a lot
of what is now an entitlement would probably cease to be an entitlement. That
is, there would be a certain amount of medical care that you would get, but
beyond that, you're on your own. And so, you know, that's where the big bucks
are, and I think they know that.

GROSS: But that's not how the president is describing it. He's saying that
we'll be better off because we'll have prescription drugs covered.

Prof. KRUGMAN: Yeah, well, it's--I have to say, one thing that we have to
realize now is that experienced Bushologists(ph) have gotten used to the idea
that whenever the president promises something, you say, `OK, that's the bait.
Where's the switch?' and it's almost without fail. If it sounds like a good
thing, then you start to look and say, `Wait. Where's the catch? What's
going on here?' And in this case, it turns out that prescription drug
coverage is supposed to come with a requirement that you enroll in an HMO,
which might be a bigger thing, basically saying that Medicare as we know
it--you have to step out of the Medicare system if you want to get the
prescription drug coverage. So there are some generous-sounding words from
the administration, but when you look underneath, it almost always turns out
that we're actually talking about a cutback.

GROSS: And the states--most of the states now are in dire financial straits.
How, if at all, does that connect with the Bush economic plan or with the
budget deficit?

Prof. KRUGMAN: Well, the first thing to say is that economically, this is a
very big thing in the short run. Right now, the state governments are
considering, or probably going to implement, a combination of tax increases
and spending cuts that amount in total to something like $100 billion over the
next year, which swamps any short-term stimulus from the Bush economic plan.
So if you actually take US government as a whole--federal, state and
local--we're actually going to be doing what we said we'd never do again after
the Great Depression, which is having a fiscal contraction in the face of a
depressed economy. And it's very intimately connected to the budget, to the
tax plan. What the US government normally does in times of economic distress
is it does some revenue sharing. It helps out state and local governments so
that they aren't obliged to cut back, you know, fully, that they get a fair
bit of help. And this is the worst state fiscal crisis since the 1930s.

GROSS: Why are so many states in such a bad financial mess?

Prof. KRUGMAN: Well, it's a little bit--it's a mixture of things. A lot of
it is the same reason why the federal government has us moved so suddenly
into--from record surplus to record deficit. At the end of the stock market
bubble, the depressed economy cuts into revenues at all levels of government.
The other thing is that a lot of state governments treated the good years of
the late '90s, when the revenue was pouring in, as if they were a permanent
condition. They didn't set aside money for a rainy day. They passed tax cuts
that were not affordable. There was some increase in spending, a little bit
of our runaway spending, although actually, if you look at the numbers,
they're not very impressive on the spending side. Basically, it's--if you
like, you could say that states did Bushonomics before Bush came in, that they
said, `Ooh, we've got a surplus. Let's give it away with tax cuts.' and then
when the conditions turned sour, they find themselves in deep, deep trouble.

GROSS: And the federal government isn't going to help them out of that
trouble.

Prof. KRUGMAN: That's right. Just before this latest Bush package was
announced, all of the newsletters, the speculation was, well, you know, the
Democrats want 75 billion in aid to the states, but, you know, Bush will
probably give them 30 billion. The number came out and it was zero, zero
dollars and zero cents, and that was--absolutely shocked. That's a--in a way,
it's unprecedented. I don't think you can look--well, there hasn't been a
state fiscal crisis this severe since the 1930s, but even in much less severe
cases, there's been at least some help from the federal government, and it's
amazing that they're providing zero this time.

GROSS: So what are some of the services or other things that we might lose as
the states get deeper into trouble?

Prof. KRUGMAN: Well, a lot of cancellation of infrastructure. We're not
going to get a lot of road-building or road repair or hospitals or schools. A
lot of stuff is going to be postponed in an attempt to save money now. The
Medicaid--whenever you talk about state budgets, medical care for the poor
always comes up. There's going to be a lot of tightening of criteria, a lot
of exclusion of as many people as possible, with the brunt of that, at least
according to the things I've been reading, falling on children. Basically, a
lot of poor children are not going to be getting medical care. So it's nasty
stuff. It's harsh and it's cruel.

You might argue that states overspent, but the things they're going to cut
back on are not pork projects. The things they're going to cut back on are
medical care for poor children and road maintenance, not good stuff.

GROSS: If you're just joining us, my guest is Paul Krugman. He's a columnist
for The New York Times and a professor of economics and international affairs
at Princeton University.

Let's take a short break here, and then we'll talk some more. This is FRESH
AIR.

(Soundbite of music)

GROSS: We're talking about President Bush's economic plan. My guest is Paul
Krugman. He's a columnist for The New York Times and a professor of economics
and international affairs at Princeton University.

Let's look at the middle class for a second. Looking at the Bush economic
plan and what's happening with the states, what would you say the middle class
stands to gain in the next few years and what do you think the middle class
stands to lose?

Prof. KRUGMAN: Well, `middle class' is a funny term in the US. The range of
people in the US who think that they're middle class runs from around 20,000
a year to 300,000 a year, and so when we talk about the middle class, it's a
problematic term. If you actually look at what's going to happen to families
near the middle of the income distribution, you know, the median family, the
answer is that they will, all told, get a few hundred dollars a year,
typically, in tax cuts out of the Bush plan, not more than that, and that on
the other hand, they will probably face state and local tax increases that
will take away quite a lot of that, maybe all of it, and they'll see a cutback
in state and local services, which will further worsen the situation. And
then there's all this postponed pain, all of these deficits that will force
drastic things to happen, basically, in the 2010s, in the next decade, which
will, of necessity, mean big cuts in the great middle-class entitlement
programs, in Social Security and Medicare. So ultimately--I think basically,
if you work it through, you'll probably have to be making 250 or 300,000 a
year to be at all likely to be a winner when the dust settles.

GROSS: So you're painting a pretty dire picture: tax cuts now resulting in
an increasingly huge deficit, cutting back of entitlements, cutting back of
other services and then, in a few years, having to raise taxes again anyways.

Prof. KRUGMAN: Yeah. I mean, anyone who's actually sat down with the
numbers, tried to figure out how this tax cut is affordable, ends up shaking
his head or, you know, banging it down against the table because the numbers
just don't work. Nothing short of really a gutting of the New Deal and Great
Society institutions, nothing short of really a drastic cutback in Social
Security and Medicare as we know them would make room for the kind of tax cuts
that the Bush administration is now pushing, so something drastic has to give.

You know, there are people who will argue that that's what we should do, but
the thing is to say is that the Bushies have never made that case. They've
never said, `Well, we need these tax cuts and, because it's so important to
have tax cuts, we propose to drastically cut back on Social Security and
Medicare in a few years.' They've made it seem as if the stuff is, you know,
perfectly reasonable and affordable without any great disruption in the
American political system, social system as we know it, and it isn't.

GROSS: Now the Bush administration is proposing big tax cuts at the same time
that it's pushing for war with Iraq. What is your opinion of lowering taxes
as we march to war?

Prof. KRUGMAN: Well, there's an issue of simple revenue. You know, this war
is going to cost something. They haven't given us any estimates, not in the
budget, but it's certainly going to cost something. The other thing is, it is
kind of weird. Isn't war supposed to be a time of shared sacrifice? Just
psychologically, it's a very strange situation, where you declare war, you
declare it's going to be tough, it's going to be hard, where you actually cut
back, you know, on social programs because of war, and at the same time,
millionaires get big tax cuts. This is unprecedented.

GROSS: What is the Bush administration proposing for funding the war? Where
is it proposing the money will come from?

Prof. KRUGMAN: Oh, the bond market. I mean, they have obviously not made any
move to raise revenue. They have not made any serious spending cuts. They've
made, you know, painful spending cuts, painful to some poor, defenseless
people, but those are--in terms of the amounts of money, they're token, so
it's really not going to make a significant difference. The idea is to borrow
for the war, which is--you always do borrow for wars to some extent, but they
seem to have no notion that there's ever any point at which you have to be
prepared to pay something for it.

GROSS: The Bush administration has offered Turkey tens of billions of dollars
in return for its help and its endorsement of war with Iraq. What do you
think of when you look at the Bush administration's domestic economic plan and
the amount of money that it's offering Turkey?

Prof. KRUGMAN: Well, the numbers on Turkey--again, you know, you have to have
some grasp of the sheer scale, both of the US budget and the Bush tax cuts.
If you look at all the tax cuts that are proposed just in this latest round,
they come out to something like $1.5 trillion. The money that we're giving to
Turkey, as best I can make out, actually turns out to be about $6 billion in
cash, so it's not really a large thing compared with the tax cuts. What's
interesting is that it is a large sum compared to the amounts that the
administration is spending on homeland security. It's interesting that the
Turks get their money right away while the firefighters and the policemen
haven't yet seen anything. It's also interesting that the Turks--it turns out
the sticking point was not the price, but the timing. The Turks wanted, and
got, immediate delivery, cash on the barrelhead. You sort of have the
impression that they don't trust this administration to make good on a
promise. They want the money now.

GROSS: If we go to war with Iraq, what do you think that might mean for the
American economy? A lot of Americans remember World War II, and World War II
actually got us out of a depression. What would an Iraq war economy mean
today?

Prof. KRUGMAN: This is not a big war. Whatever else we think, it's not--you
know, World War II at the peak, the US was spending more than 40 percent of
GDP on the war effort. That would be the equivalent of $4 trillion a year
today. Even high estimates of the war in Iraq say we might be spending one or
two hundred billion per year. So the war is not going to be a big thing,
either negative or positive, in terms of the spending on it.

I think the question you have to ask is: What are the collateral effects?
What kind of other things happen? And is this going to--some people think
it's going to lead to plunging oil prices, which is a good thing, but I've
tried to figure out that and I can't see it actually in the data. Other
people think it's going to lead to unrest and uncertainty all around the
world, which is probably a much more serious negative.

I think it's actually probably overrated as an economic issue in both
directions. The greatest superpower the world has ever known is proposing to
take on a fifth-rate power someplace else. This is not going to be a big
thing in terms of the economy.

GROSS: America has been losing jobs, and much of our manufacturing is done
overseas. Floyd Norris, who writes for The New York Times, your paper, wrote
in December that the economy now supports 2.2 million fewer private-sector
jobs than it did when President Bush was sworn into office. Are there ways of
creating more jobs now that you can see?

Prof. KRUGMAN: Oh, I think it would be extremely easy. The ingredients of a
sensible recovery plan are fairly obvious. You go out there and provide aid
to the states so they don't have to do all these cutbacks. You provide money
to people who are likely to spend it through rebates to individuals, not to
rich people. And probably you also have some acceleration of things the
government needs to spend money on. I mean, we could create a whole lot of
jobs very justifiably with the homeland security projects. You know, you
could have a Franklin Roosevelt-style WPA in the name of defending the
country. But all of that stuff is apparently out of bounds politically.

GROSS: Why do you think it is?

Prof. KRUGMAN: I think the ruling party, the party that controls Congress and
the White House, is dedicated to the idea that being nice to poor people is
bad and being nice to rich people is good. They just cannot wrap their minds
around the idea that we've actually got a situation in which being
compassionate is also practical.

GROSS: Paul Krugman is a New York Times columnist and a professor of
economics and international affairs at Princeton University. We'll talk more
about the economy in the second half of the show. I'm Terry Gross, and this
is FRESH AIR.

(Soundbite of music)

(Announcements)

GROSS: Coming up, we continue our conversation about the Bush
administration's proposed tax cuts with New York Times columnist Paul Krugman.
Then syndicated columnist Bruce Bartlett explains why he supports the tax
cuts. He was an economic adviser for President Reagan and the first President
Bush.

(Soundbite of music)

GROSS: This is FRESH AIR. I'm Terry Gross, back with Paul Krugman, a New
York Times columnist and a professor of economics and international affairs at
Princeton University. We've been talking about why he opposes the president's
tax cut plan.

What do you think the odds are that the Bush economic plan is going to go
through Congress?

Prof. KRUGMAN: I have no idea. I mean, sometimes when I look at the swing
moderates, people like the moderate Republicans like Susan Collins or the
right wing of the Democratic Party, I think of them as being like Charlie
Brown with Lucy and the football. You know, no matter how many times Lucy
snatches away the football as he tries to kick it, he still falls for it
again. And I suspect that they may do it, you know, one more time, that they
may once again believe that this is actually a sensible plan that Bush is
proposing and go for it. But they're going to be yelling, `Argh!' just like
Charlie Brown. It happens again and again.

GROSS: You're critical of what the president projects will be the average
benefit, the average tax cut for a middle-class American. In one of you
columns, you basically told a joke that gave an interesting definition of
average. Would you tell that for us?

Prof. KRUGMAN: Sure. It's--a liberal and a conservative are sitting in a
bar. Bill Gates walks into the bar. The conservative says, `Yippee! We're
rich. The average person in this bar is now worth a billion dollars.' And
the liberal says, `What are you talking about? Yeah, sure, Bill Gates has
walked in and that raises the average in the bar by a billion dollars. But
that doesn't make you or me any richer.' And the conservative says, `Ha! I
see you're still practicing the discredited politics of class warfare.'

That really does--that is the way it is. I mean, the typical--I think we can
say the generic Bush plan on anything delivers huge benefits to people at the
top; not very much to most of the rest of the population. Then they go out
and say, `Well, look, the average person gets a benefit which is X, $1,000,
$1,500, whatever,' when, in fact, that's just like saying, `Well, there are 30
people in the bar and if you divide Bill Gates' wealth by 30, then it's still
a lot of money.' But, in fact, the other 29 people in the bar don't get any
of that.

GROSS: When you look at the Bush economic plan, does it strike you as
politics as usual or does it strike you as something beyond that?

Prof. KRUGMAN: No, this is not politics as usual. I mean, I haven't studied
all previous presidencies, but I don't think there's been anything like this
level of--well, let me be blunt. I think the level of irresponsibility and
dishonesty is unprecedented. There's been nothing like this before. No
candidate has ever misrepresented the content of his policies as much as Bush
did in 2000, and no president has ever done as much as Bush has done since.
And I can't think of a case before where a US administration has pursued
policies that seem so obviously to be heading us in the direction of fiscal
catastrophe.

GROSS: If you were the economics czar for President Bush, what advice would
you be giving him?

Prof. KRUGMAN: Oh. Well, it depends on what his goals are, right? I mean, I
don't--in terms of my goals, I would scrap the whole thing and let's start
over. Look, here's a picture of what I think is happening in the economy
right now. We have a short-run problem which is a sort of hangover from the
excesses of the bubble years. There was too much investment in some things,
too much corporate debt. Business investment's going to stay depressed for a
while. So we need a bridge over this depressed period. We need to sustain
spending, which means aid to states and local governments, money in the hands
of working-class Americans who are likely to spend it, and federal spending on
homeland security and other things, all to support demand until businesses are
ready to invest again.

Longer term we have what is now looking like a very serious fiscal situation.
So we really should be--we shouldn't have done that tax cut in 2001, and we
certainly shouldn't do anymore long-term tax cuts. So we should be rolling
all of that back. And then we should be thinking about what kinds of choices
we need to make about Social Security and Medicare to assure their long-run
stability.

It's a kind of, you know, pump money into the economy now, but let's also do
something to make sure that the federal government can actually pay its bills
in the decades to come. Not very complicated, actually, but as I say, again
and again you come up with the reality that anything sensible seems to be
completely ruled out politically these days.

GROSS: How do you think the possibility of war with Iraq is affecting the
amount of attention the Bush economic plan is getting in Congress and from the
American public?

Prof. KRUGMAN: Oh, I think it's tremendously distracting. I'm having the
personal experience that when I do write a column that is purely about
economic issues, I actually get some letters that say, you know, `We don't
care right now,' and in general just a huge drop-off of interest. And I think
that's general. It's very hard to focus on any of this stuff with war
occupying the foreground of everyone's attention.

GROSS: Do you think it's important to focus on it in spite of war?

Prof. KRUGMAN: I don't know. I guess to some extent I'm just a normal member
of the public, and I also am rather obsessed with this war right now. It is a
little bit hard to go on about, you know, long-term revenue effects of the new
savings accounts when we may be talking about bombs any day now. Let me say,
though, I actually regard this all--as being in some sense all about peace.
You know, I think that the style of policy that I decry in the Bush-ese when
it comes to economics is also visible in their foreign policy. So I don't
actually view these as entirely separate issues.

GROSS: What's the connection in your mind?

Prof. KRUGMAN: Both a kind of level of irresponsibility--you know, we're
going to do what we want to do and never mind the consequences--and a
consistent unwillingness to level with the public.

GROSS: Well, Paul Krugman, I want to thank you very much for talking with us.

Prof. KRUGMAN: Well, thank you.

GROSS: Paul Krugman is a New York Times columnist and a professor of
economics and international affairs at Princeton University.

Coming up, syndicated columnist and economic adviser Bruce Bartlett tells us
why he supports the president's tax cuts.

This is FRESH AIR.

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Interview: Bruce Bartlett on Bush's tax cut plan
TERRY GROSS, host:

Unlike our previous guest, Paul Krugman, Bruce Bartlett supports President
Bush's tax cut plan. Bartlett is a syndicated columnist who's published in
the Washington Times, the New York Post and The Detroit News. He's a senior
fellow at the National Center for Policy Analysis, and he was an economic
adviser in the administrations of President Reagan and the first President
Bush.

The president proposed steep tax cuts when we had a budget surplus, and now
he's proposing deep tax cuts now that we have a huge deficit. Do you think
his rationale for the tax cuts has changed?

Mr. BRUCE BARTLETT (National Center for Policy Analysis): No, I don't think
so. I think that the things he has proposed in his budget for 2004, which is
the one that was just proposed in January, are really more thought of as
fundamental tax reforms than stimulus measures. Stimulus measures would only
be justified under the conditions of a very deep economic downturn.

But fundamental tax reforms, I think, are justified under any circumstances.
Even if the economy were growing 10 percent a year and we had, you know, 1
percent unemployment, I still think that many of the things that the president
has proposed such as eliminating the double taxation of corporate profits,
increasing incentives for individuals to save for the future--I think these
are things that are always justified because they raise the long-term growth
rate of the economy, raise productivity and thereby raise the standard of
living.

GROSS: Now you don't think that this is meant to be an economic stimulus, but
hasn't President Bush said that it would be?

Mr. BARTLETT: Well, he sort of talks around it. I think that there's no
question that he's trying to use the current economic difficulties as a
political, you know, opportunity to get some things passed that perhaps he
would like to have done under any circumstances. But I don't think he's
really emphasized the stimulative impact of his plans so much as just the
rightness of the policies.

GROSS: The critics of the Bush administration say that his tax plan is a plan
to benefit the rich and not really help the poor or the middle class. Agree?
Disagree?

Mr. BARTLETT: Well, I think if you look at tax policy just in terms of how
people pay taxes, that may be a justifiable position. But if you look at tax
policy in terms of changing people's incentives and changing the economic
conditions of the economy, then I think it's not. Because higher saving and
higher investment, which quite frankly has to be done by the wealthy because
they're the ones who have the ability to do it, they're the ones who have the
ability to create jobs and do the investment, I think that the ultimate
beneficiaries are really the poor and the middle class because it leads to an
increase in the number of jobs, an increase in productivity, an increase in
wages so that the ultimate beneficiaries, I think, of higher investment and
saving are really the poor and the middle class.

GROSS: Say, though, when the corporations make more money because of the new
incentive for investment, they decide to keep a lot of those extra profits
instead of creating more jobs.

Mr. BARTLETT: Well, the money has to go somewhere. I mean, if they keep the
money, they either have to do one of two things; they have to either pay out
in dividends, and the president is proposing a policy that will encourage them
to pay out more dividends that people can then reinvest, or they have to
invest the money either in their own productive capacity or they have to buy
stocks or bonds or something else. The money just doesn't sit in a mattress.
So the money will be saved. It's the aggregate amount of national saving that
really matters in terms of our ability to increase productivity, and it
doesn't really matter how that is done.

GROSS: How do you justify cutting taxes at a time when we're already facing a
huge deficit? Cutting taxes means the deficit's going to keep getting bigger.

Mr. BARTLETT: Well, I think that it's a question of how can you rationalize
not making an investment in America's future simply to maintain balance in the
federal budget when all the evidence suggests that the money would simply be
spent by Congress on pork barrel projects and lots of things of no particular
value to the nation as a whole? So I think that the premise that if we didn't
cut taxes, then the deficit would be lower by an equal amount is just not a
valid premise. The Congress would simply spend the money.

GROSS: The premise of your answer is that any money that's spent is going to
be on worthless pork barrel projects. But isn't it true that homeland
security isn't adequately funded and that the future of Medicare and Social
Security are in jeopardy because the deficits are going to be so high and they
will be growing even higher at a time when the baby boom is retiring, and a
lot of Social Security and Medicare is supposed to be paid out then, who's
going to handle all of that and what's that going to mean for the future
generations?

Mr. BARTLETT: Well, I don't see any evidence that homeland security is
underfunded. I mean, you can always spend more on such things. There's no
limit to how much you can spend. You just have to draw the line somewhere at
what seems to be reasonable. And I think that the administration's approach
to this is reasonable. As far as Social Security and Medicare are concerned,
I think that those are two programs that are fundamentally unstable and do
need to be fundamentally restructured.

But I don't think that--but I think one of the best ways of allowing us to
carry the burden that those programs impose upon us is to have the fastest
possible economic growth. And I think that increasing the total size of the
economy by lowering taxes in such a way that will encourage faster economic
growth is probably the best thing we can do today that will make those
problems more bearable.

And I don't think one's a substitute for another. I don't think that just
running large surpluses today really makes those problems go away because the
problems are so great, they're so large that you would have to run, you know,
massive surpluses year after year after year after year to be able to pay the
promises that have been made in those programs, which simply cannot be funded.
They have to be restructured, and anything that puts off that day of reckoning
I think is ultimately not in the public interest.

GROSS: You said that there's no real evidence that homeland security is
underfunded. A lot of critics say that it has been, and also many states are
complaining that they just don't have enough money to do what they think needs
to be done for homeland security on the state level. And they don't feel like
they're getting anything close to adequate help from the federal government.

Mr. BARTLETT: Well, look, the states are whiners. They always complain that
they never have enough resources. And that is true whether times are good or
times are ill. And it was true before September 11 and it's true now. The
evidence is that when times were flush, the states grossly overspent, or at
least some of them did, on a lot of wasteful projects that were designed
mainly for the purpose of ensuring the re-elections of the politicians in
charge of those states. And of course any time they can get the federal
government to pay some of their expenses for them, they're going to say that
that's what they need.

All I can say is that I think you have to--you just cannot take these things
at face value. You have to look at them very carefully and evaluate these
needs in terms of--to the extent that they are over and above what the states
would otherwise have to be responsible for. And I think that they're always
looking for a handout from Uncle Sam and a way to get the federal government
to fund the things that they otherwise would be funding anyway.

GROSS: Many states are in real bad economic straits right now, and at the
same time that they're trying to develop new homeland security projects. Many
states are cutting things ranging from education to the arts to funding for
welfare, funding for Medicaid. And a lot of critics of the Bush
administration economic plan say that it's likely many states will end up
raising their taxes in order to stay above water and that those raises in
state taxes will compensate for any benefits that the middle class has gained
through President Bush's tax cuts, that it will...

Mr. BARTLETT: Well, I'm not sure if that's true. I mean, there was a case
just recently in Oregon where they had a state referendum on, `Do you want us
to cut state spending or do you want us to raise taxes?' And Oregon is not
what you'd ordinarily consider a conservative state, and the overwhelming vote
was to cut spending. So I think that what got these states in trouble is
during the economic bubble of the late 1990s, when times were flush, they
spent way more money than they should have spent and now they're paying the
piper. So I think that bailing them out is really unfair to those states that
were responsible and kept spending down and didn't greatly increase spending
just because they had a temporary increase in revenues. And those states are
very much in--doing just fine.

GROSS: Several historians have pointed out that it's unprecedented for the
United States to cut taxes as it faces war. Usually taxes are raised in time
of war. In fact, that's how the income tax was begun, to help pay for war.
Do you have any reservations about cutting taxes at the same time we're facing
war with Iraq, an expensive one?

Mr. BARTLETT: No, I don't. I think that the wars of the past and the wars of
the future are so radically different there's really no comparison. I think
that the wars of today are fought much more by professional soldiers using
high-tech weaponry that is already in existence at the time the war breaks
out, and we don't really have the need for mass mobilization for building
thousands of tanks and thousands of airplanes, as was the case in World War II
and Korea and to a lesser extent in Vietnam.

I think that today, you know, the high-tech weaponry we have is able to do
multiples of the kinds of damage that previous wars' weapons did, and I think
our soldiers are so well-trained and so professional. So I really think that
the main thing in terms of fighting future wars is to be extremely
well-prepared before the war even begins. That is to say all the spending on
the war comes long before the actual outbreak of hostilities, and I think that
was true in the Gulf War and I think that's true in this war.

GROSS: So you don't think we'll have any problem at all funding war with Iraq
and the rebuilding of Iraq?

Mr. BARTLETT: Well, I wouldn't say no trouble at all, but keep in mind that
one of the problems with Iraq right now is that United Nations sanctions have
severely limited that country's oil output. And under a democratic and free
Iraq, even if there's some considerable damage to their oil industry, I think
that new investment and improvements in their technology and elimination of
sanctions would allow that oil output to increase several times, perhaps from
one million barrels a day to three or four or five million barrels a day. And
I think that that will provide more than enough revenue to allow Iraq to
rebuild itself without the necessity of a huge amount of foreign aid from the
United States. And I also think that our allies will undertake a great deal
of the burden of peacekeeping in that country, so that I think our main job is
regime change, and I think that the economic costs beyond that probably won't
be nearly as high as most people think they will.

GROSS: My guest is Bruce Bartlett, a syndicated newspaper columnist and a
senior fellow at the National Center for Policy Analysis. We'll talk more
after a break. This is FRESH AIR.

(Soundbite of music)

GROSS: Bruce Bartlett is my guest. He's a senior fellow at the National
Center for Policy Analysis. He's a syndicated newspaper columnist. His
column is carried in the Washington Times, New York Post and Detroit News. He
has served as an economic adviser in the administrations of Ronald Reagan and
George Bush Sr.

You said earlier that one of the reasons why you support the president's tax
plan is that you think it's basically a restructuring of the tax code. How do
you think the code should be restructured? Like proportionately do you think
that the wealthy are paying too much taxes and do you favor a progressive tax?
Like what is the right proportion for the people in the upper bracket to pay?

Mr. BARTLETT: Well, what I think is we ought to structure our tax system
towards taxing consumption, because I think that that's a better measure of
what people take out of society, and get away from taxing saving and
investment, because saving and investment add to the economic pie. And even
though the people who make the saving and investment get a return on that
investment, most of the returns go to people that they don't have anything to
do with; that is, the workers and people of that sort who are employed and
have wages from the investments that are made. So I would like for us to get
away from taxing saving and investment and moving more towards a
consumption-based tax system.

And I think that's the most important reform we could possibly make, and I
think that the president's proposals move us in that direction by getting rid
of the double taxation of corporate profits, moving us towards expensing of
corporate investments, allowing people to save more without having to pay
taxes on the return to those investments. I think these are all incremental
movements in the direction that I would like to see the country going.

GROSS: A lot of experts say that a consumption tax is always much more
difficult for the poor and the middle-class than it is for the wealthy. It's
a tax that's skewed to favor the wealthy and hurt the poor and middle class.
Also, if you're taxing consumption and you're making it that much more
difficult for the poor and the middle class to afford the things that they
want or need, can't that hurt the economy because it's an anti-stimulus, it
makes it harder to buy things for the average person?

Mr. BARTLETT: Well, that would be true if you were talking about a
traditional type of direct tax on consumption, such as a retail sales tax,
such as those that we have at the state and local level or a value-added tax
such as the Europeans have. What I'm talking more about is something that
economists call consumed income tax. Think of it this way: There are only
two things you can do with your income. You can either save it on the one
hand or you can consume it on the other. So if you eliminate taxation on
saving, you have, per se, a consumption tax. But you can still have
progressive tax rates if you want to; you can still relieve the poor through
exemptions if you want to and still have high rates on the wealthy. And it
doesn't necessarily have to be more regressive.

What it would do is it would reward those people who save and invest at the
expense of those people who go into debt and who live beyond their means.

GROSS: Critics of the president's proposals to change retirement accounts,
and this would include being able to put more money into retirement accounts
without paying taxes on that money. And, you know, the ceiling for the amount
of money you could put into those retirement accounts would be raised.
Critics say that that's a really nice thing for people who can afford to save
more, but that most people are barely saving anything and they can't afford to
save any more than they already save. So giving them incentives to save more
by decreasing the taxes on those savings isn't going to mean a thing for those
people who have no money to save in the first place, which is a lot of people.

Mr. BARTLETT: Well, one reason why people don't have as much money to save as
they would like to have is because they pay so much in taxes, so it's sort of
a chicken and egg problem. Now I think that a lot of people, if they thought
that they could get tax-free retirement savings, as president's proposed with
his savings incentives, I think that they could save in lots of ways more than
they do now. I mean, people in impoverished Third World countries in some
cases save more than many Americans do. They're simply reacting to the
incentives that they have been given in terms of our tax system. So I think
that a lot of is incentives and you want to encourage people to change their
behavior and not go into debt so much because there will be more benefit to
them from saving, so I think that--again, it's sort of a chicken and egg
problem, and I think the president has proposed a reasonable way of trying to
move us in the direction I think we all want to go.

GROSS: Well, I want to thank you very much for talking with us.

Mr. BARTLETT: Thank you.

GROSS: Bruce Bartlett is a syndicated newspaper columnist and a senior fellow
at the National Center for Policy Analysis. Earlier, we heard from New York
Times columnist Paul Krugman, who's a critic of the president's tax cut plan.

(Credits)

GROSS: I'm Terry Gross.