Over here, it's tax cuts, stupid

I would like to report this week that Washington is awash with Cook Fever, following the Foreign Secretary's first visit here since Boy George assumed power. Last Monday, I happened to be on the same plane from London to Washington as Robin Cook, and was astonished to realise that British hacks had come along especially in the hope that some crumbs from the great man might drop their way; enough to say that not a word about the visit appeared here, even in the next day's Washington Post.

Gone are the days, in fact, when new US presidents made it their business to seek out British prime ministers: Boy George's first meeting with a head of state after the election was with the president of Mexico; and while the British Foreign Secretary was wearily wending his way off the British Airways 777 on Monday, Dubbya was entertaining the Canadian prime minister in the White House. Tony Blair will finally get his chance later this month, so you should brace yourself for a spate of reports on how well the two men got on with each other and how the special relationship is as alive and kicking as ever.

The choice of the first two foreign leaders seen by Boy George actually speaks volumes about his political philosophy, such as it is. It encapsulates a view that life is driven by the pursuit of money: hence early meetings with leaders of the US's two closest trading partners. Easy, really, and perfectly natural. "Bush turns focus to foreign affairs", was how one apparently serious headline described Dubbya's meeting and subsequent cosy dinner of bison and lobster with Jean Chretien on Monday.

Boy George then invited poor Chretien to go fishing, so you can bet your bottom dollar that Blair will receive a similar invitation, which will then be cited by the British media as evidence of how magically close the Bush-Blair relationship has already become.

It is Dubbya's domestic focus on fiscal issues, in reality, that is most dominant here. Perhaps the most crucial policy he must push through if he is to make anything of the 43rd presidency is his promise of a $1.6trn tax cut, and he is now in the midst of a major PR campaign to try to get as much of it as possible accepted. You read it here that his first serious trouble would come from the right rather than the left: while Democrats have so far been issuing only muted protests, the real baying has come from the likes of the Senate Republican whip Don Nickles, who also wants the capital gains tax on investments to be cut from 20 to 15 per cent. The Republican leader in the House, Dick Armey, is pressing for even bigger tax cuts. And last Wednesday, a group of far-right Republicans lobbied for the tax cut to exceed $2.6trn.

For a man setting out to be depicted as a uniter and healer, the tax cuts - in effect, a return to Reaganomics - therefore involve very politically risky terrain indeed. In Boy George's tax proposals, the wealthiest 20 per cent in the country receive the biggest tax cuts - while low wage-earners paying tax on only 15 per cent of their income will continue to pay the same.

The Boy George answer is always the same: the 20 per cent who will receive the biggest relief are those who most deserve it, because they pay 80 per cent of the nation's taxes. Those currently paying in the 39.6 and 36 per cent brackets will all be rationalised down to 33 per cent, bringing major gains for the better-off; those paying in the 31 and 28 per cent groups would have to pay only 25 per cent under Dubbya's proposals.

This means that a married couple with an annual income of $300,000, say, would receive a tax cut of more than 6 per cent; those bringing in between $12,000 and $45,000 would continue to be taxed at the same level. And Boy George's triumphant answer to that? Well, they're the folks who don't pay so much tax in the first place, aren't they?

A quiet response so far from Senator Kent Conrad, the most senior Democrat on the budget committee, is that Dubbya's policies will rob Social Security and Medicare of future much-needed income - and that the policies represent a return to the "deficit ditch" days of Ronald Reagan.

Moreover, this form of income tax no longer represents the main deduction from pay cheques: 80 per cent of Americans now pay more in what they call "payroll taxes", deductions specifically destined for Medicare and Social Security. Under Dubbya's plans, these deductions will stay the same - and so the promised slashing of taxes will not seem nearly so far-reaching as they have been presented. The easiest promises to implement will be the abolition of the estate death tax and the so-called "marriage" tax, which Dubbya should have no difficulty with.

But, having done that, he then becomes enmeshed in trying to implement policies with profound economic implications. Reagan's 1981 tax cuts quadrupled the national debt - but, like Reagan, Boy George has always taken the intellectually untroubled line that cutting taxes is a potent way of stimulating a faltering economy. Consumer and corporate confidence is now low; there is a widespread belief that the decade-long US economic boom is in for a landing, if not a crash landing. Boy George's answer is not so much to let them eat cake, but to cut their taxes and then watch a re-boom unfold.

His treasury secretary, 65-year-old Paul O'Neill - himself a millionaire dozens of times over - is already distancing himself from these Dubbya simplicities. We are heading for a fascinating winter here politically - and the likes of Messrs Cook and Blair, I'm afraid, will have only the most minor of walk-on roles.

By Andrew Stephen

Andrew Stephen was appointed US Editor of the New Statesman in 2001, having been its Washington correspondent and weekly columnist since 1998. He is a regular contributor to BBC news programs and to The Sunday Times Magazine. He has also written for a variety of US newspapers including The New York Times Op-Ed pages. He came to the US in 1989 to be Washington Bureau Chief of The Observer and in 1992 was made Foreign Correspondent of the Year by the American Overseas Press Club for his coverage.

This article first appeared in Exclusive: how Labour could lose

2001-02-12