Re-election means new challenges for Bush

Among his proposals: reform the Social Security system, simplify the tax code and cut the federal deficit in half. It won’t be easy, local economic experts say.

Steve Mullins, Drury University professor of business administration and economics, said the impending economic recovery won’t be enough to accomplish all three objectives simultaneously.

“The Congressional Budget Office, a non-partisan organization, has been pretty up front about this,” he said. “We’re not going to grow our way out of this deficit. It’s not going to be cut in half without some changes in discretionary spending or tax law, unless the economy does something and grows by unusually high annual rates.”

But then, neither candidate revealed plausible solutions in their campaigns, Mullins added.

“I would fault both the president and his opponent, Kerry,” Mullins said. “I don’t think either one of them talked realistically about the budget problems that the federal government’s going to face over the next decade or two. Not only did we have some very large tax cuts implemented this decade, which have contributed to the deficit, but we’ve got the impending Social Security crisis that’s going to hit us in 10 years, when all the baby boomers start hitting the Social Security and for Medicare rolls.”

Social Security, long called the “third rail” of politics because of the danger it posed to any politician daring enough to touch it, was a hot phrase for both candidates in the presidential campaign. Bush has told the national press that his Social Security proposal calls for up to a third of payroll taxes to be diverted into private accounts, to be invested by individuals. The problem, Mullins said, comes in the “transitional period.”

“Privatization of the system has some good things about it in terms of macroeconomic performance, but unfortunately there’s no way to do that now without a lot of really serious transition problems,” he said. “How do you provide retirement benefits to this big block of the population that’s fixing to retire and at the same time divert up to a third of payroll tax revenues into private accounts, which by definition can’t be used to pay those benefits for current retirees?

“Economists were really optimistic in the late 90s when the budget surpluses materialized, but since those surpluses are gone, unfortunately things are looking a little bit more dire for either retirees’ benefits or payroll taxes.”

As for simplifying the tax code, Southwest Missouri State University professor of accountancy Sandra Byrd has her doubts about how successful those efforts can be.

“You’d think that anything that could be done to simplify the tax law would help,” she said. “The problem is that every tax simplification act that we’ve had has done nothing except complicate the tax code further.”

Through a low-income tax clinic she runs at SMSU, Byrd has a grasp of how tax codes impact the general public. The clinic last year assisted 65 low-income individuals and families with solving tax controversies.

“Most of that was just that they didn’t know how to communicate with the IRS,” Byrd said, comparing the IRS’ language to Greek. The child tax credit is an example.

“Right now, there are several different definitions of what a child is, depending on what form you’re filling out,” she said. “Things like that just make it very complex for the average person to spot, especially if you can’t afford a tax preparer.”

One group that is happy about Bush’s re-election: small-business owners.

Scott George is a member of the leadership council for the Missouri chapter of the National Federation of Independent Business, as well as the president and CEO of Mid-America Dental and Hearing Clinic in Mt. Vernon. George said the NFIB favored Bush because of his pro-small-business stance during his first term.

“For example, the Bush tax cuts that went through (in May 2003) were very demonstrably pro-small business,” George said. “The economic indicators immediately leaped up when the tax cuts hit the paycheck. That didn’t ripple through the economy, it roared through the economy.”

Mullins said it’s not surprising that small-business owners would support Bush.

“Part of the reason would have to be the president’s tax policy,” Mullins said. “Businesspeople, regardless of their stripe, generally perceive cuts in business and personal income taxes as favorable to increases. From a business perspective, tax is just another cost that has to be overcome either through raising the cost of the final product or doing something else that’s typical to do, and that’s cutting wages. Kerry was fairly clear that he would roll back some of the president’s tax cuts, especially those focused at higher income groups, and my guess is that’s what (the NFIB) was focusing their attention on.”

George said supporting the president is not a matter of party affiliation.

“We support those state and federal legislators who support us. In other words, they choose us by their votes. There are Democrats we support and there are Republicans we don’t support,” he said. “Typically, Republicans choose, by their votes, to be pro-small business. We long for the day when the majority of legislators on both sides of the aisle vote for small business.”

In the end, Mullins said it’s obvious the president has a tough situation to fix in the next four years.

“The chickens are probably going to come home to roost here in the next 15 years or so,” Mullins said. “It’s going to be interesting to see how the president tries to finesse that rhetorically, because with the deficit and the increased costs of the war on terror and in Iraq, there’s a big arithmetic hole in that calculation – a $2 trillion hole – that he hasn’t told us how he’s going to fill.”