Bush’s economic advisers tried to talk him
out of the rebate, but ran into a brick wall.
No Reaganites praised the Bush plan; all favored something much bolder, such as the flat tax proposal that was being promoted by publisher Steve Forbes, who was challenging Bush for the Republican nomination. Rather than defend his proposal as one that would increase growth, Bush argued that its main purpose was simply to deplete the budget surplus, which had grown under President Bill Clinton to $126 billion in 1999. Surpluses were dangerous, Bush and his advisers repeatedly warned, because Congress might spend them.
By the time Bush took office in January 2001, the economy was clearly in a slowdown; diametrically opposite economic conditions from what they were when his tax plan was first proposed. Not only had the economy gone from booming to recession, but a considerable portion of the projected surpluses had evaporated in the process as spending rose and revenues fell.
The rational thing to do under the circumstances would have been to rethink the tax plan and devise a new one that was more appropriate to the economic and budgetary conditions of early 2001, rather than those of mid-1999. Instead, Bush sent to Congress the nearly-identical proposal he had endorsed two years earlier. His one concession was to permit the addition of a one-shot tax rebate — classic Keynesian policy that was opposed by all supply-siders and most mainstream economists as well, since previous experience with rebates showed that they had no stimulative effect whatsoever.
Bush’s economic advisers tried to talk him out of the rebate, but ran into a brick wall. He had made up his mind — on what basis, nobody knows — to support the rebate even though it was completely contrary to everything Republicans traditionally believed about taxation. Journalist Ron Suskind explains what happened when one of Bush’s economic advisers tried to set him straight.
One morning in 2001, one of President Bush's most senior economic advisers walked into the Oval Office for a meeting with the president. The day before, the adviser had learned that the president had decided to send out tax-rebate checks to stimulate the faltering economy. Concerned about deficits and the dubious stimulatory effect of such rebates, he had called the president's chief of staff, Andy Card, to ask for the audience, and the meeting had been set.
As the man took his seat in the wing chair next to the president's desk, he began to explain his problem with the president's decision. The fact of the matter was that in this area of policy, this adviser was one of the experts, really top-drawer, and had been instrumental in devising some of the very language now used to discuss these concepts. He was convinced, he told Bush, that the president's position would soon enough be seen as "bad policy."
This, it seems, was the wrong thing to say to the president.
According to senior administration officials who learned of the encounter soon after it happened, President Bush looked at the man. "I don't ever want to hear you use those words in my presence again," he said.
"What words, Mr. President?"
"Bad policy," President Bush said. "If I decide to do it, by definition it's good policy. I thought you got that."
The adviser was dismissed. The meeting was over.
Subsequent analysis showed that the rebate had virtually no stimulative effect, exactly as economic theory predicted. By and large, people saved the rebate rather than spend it. And the saving didn’t even do any good because the deficit, which is negative saving, increased by the same amount. In any case, the economy continued to deteriorate and unemployment rose sharply despite the tax cut.