Other People's Money

SYNOPSIS: Krugman exposes the ludicrous numbers behind the Republicans' stimulus package and where our Social Security surplus will really be going

You may have seen the story about the businessman who allegedly used the attack on the World Trade Center to make off with other people's money. According to his accusers, Andrei Koudachev stole $105 million that had been invested with his firm, falsely asserting that the sum had been lost in the collapse of the towers. It's not entirely clear whether he is accused of stealing the money before Sept. 11, then using the disaster to cover his tracks, or of taking the money after the fact; maybe both.

It's too bad that so many of our leaders are trying to pull the same trick.

Just before Sept. 11, political debate was dominated by the growing evidence that last spring's tax cut was not, in fact, consistent with George W. Bush's pledge not to raid the projected $2.7 trillion Social Security surplus. After the attack, everyone dropped the subject. At this point, it seems that nobody will complain as long as the budget as a whole doesn't go into persistent deficit.

But two months into the war on terrorism, we're starting to get a sense of how little this war will actually cost. And it's time to start asking some hard questions.

At the beginning of the week we learned that the war is currently costing around $1 billion per month. Oddly, this was reported as if it were a lot of money. But it's only about half of 1 percent of the federal budget. In monetary terms, not only doesn't this look like World War II, it looks trivial compared with the gulf war. No mystery there; how hard is it for a superpower to tip the balance in the civil war of a small, poor nation? At this rate, even five years of war on terrorism would cost only $60 billion.

True, the terrorist attack has also forced increased spending at home. But Mr. Bush has threatened to veto any spending on domestic security beyond the $40 billion already agreed. And even that sum is in doubt. Half of the $40 billion was money promised to New York; last week New York's Congressional delegation, Republicans and Democrats alike, demanded that Mr. Bush disburse the full sum, openly voicing doubt about whether he would honor his promise.

So the budgetary cost of the war on terrorism, abroad and at home, looks like fairly small change. Even counting the measures that are likely to pass despite Mr. Bush's threat, I have a hard time coming up with a total cost that exceeds $200 billion. Compare that with the $2.7 trillion Social Security surplus. What will happen to the remaining $2.5 trillion?

Again, no mystery: much of the money was actually gone before Sept. 11, swallowed by last spring's tax cut, which will in the end reduce revenue by around $1 trillion more than the numbers you usually hear. And the administration's allies in Congress are striving energetically to give away the rest in tax breaks for big corporations and wealthy individuals.

The new round of tax cuts is supposedly intended as post-terror economic stimulus. But recent remarks by Dick Armey give the game away. Defending the bill he and Tom DeLay rammed through the House the one that gives huge retroactive tax cuts to big corporations he asserted that it would create 170,000 jobs next year. That would add a whopping 0.13 percent to employment in this country. So thanks to Mr. Armey's efforts next year's unemployment rate might be 6.4 percent instead of 6.5. Aren't you thrilled?

Let's do the math here. This bill has a $100 billion price tag in its first year, more than $200 billion over three years. So even on Mr. Armey's self-justifying estimate, we're talking about giving at least $600,000 in corporate tax breaks for every job created. That's trickle-down economics without the trickle-down.

Ten weeks ago this bill, or the equally bad bill proposed by Senate Republicans, wouldn't have stood a chance. But now people who want to give the Social Security surplus to campaign donors think they can get away with it, because they can blame Osama bin Laden for future budget shortfalls.

They say every cloud has a silver lining. The dust cloud that rose when the towers fell has certainly helped politicians who don't want you to see what they're up to.

Originally published in The New York Times, 11.14.01