Article: A White House caught red-handed

From the March 16 edition of the Financial Times:

A White House caught red-handed
By Jacob Weisberg

Last week, the magazine I edit broke the news that Claude Allen, until recently the White House chief domestic policy adviser, was arrested for theft in the suburbs of Washington. The US president has expressed his shock and disappointment. If the allegations are true, how could one of his top aides, a devout Christian who passed a series of Federal Bureau of Investigation background checks, have been a common thief? But the more we hear about what Mr Allen is accused of, the less it sounds like kleptomania and the more it sounds like an application of Bush economic policy.


Mr Allen’s alleged scam was something called “return fraud”. According to the police, he would purchase a home-theatre system or a computer printer from a department store and put it in the trunk of his car. Then he would come back to the same store with his sales receipt, pull an identical item off the shelf and take it to the return desk for a refund. Using this technique, a brazen perpetrator pays for the item once, but derives value from it twice – he gets his money back and keeps the merchandise. Mr Allen is alleged to have stolen more than $5,000 over the past year in this way. His lawyer has described the incidents as a “series of misunderstandings” and Mr Allen denies any wrongdoing.

As a point of comparison, consider the president’s Social Security proposal, which died in Congress last year. George W. Bush wanted to set up a system of private retirement accounts for future retirees. This would have required him to divert $1,000bn or so from the Social Security Trust Fund, which pays for benefits for current and future retirees. Since Mr Bush did not propose to reduce benefits, how was he going to make up the difference? By sauntering to the customer service desk and asking for his money back. In this case, the receipt was a bogus projection that the retirement funds invested in the stock market would grow so quickly that everyone would come out ahead. The main difference between Mr Allen’s alleged scam and Mr Bush’s attempted one is scale.

Mr Allen’s former colleagues in the West Wing are now trying to slip more tax cuts out of the door without stopping at the cash register. Their trick is to claim that with the manager’s special, tax cuts are on sale – for nothing. “You cut taxes and the tax revenues increase,” Mr Bush said last month. In other words, tax cuts will mean more money for the Treasury, not less. There is, of course, no economic support for the concept that tax cuts are cost-free, just as there are no shops where customers are encouraged to walk past the checkout without paying. Mr Bush’s tax- avoidance scam is based on the truism that government revenues almost always rise in nominal terms because of inflation, population growth and gross domestic product growth. Even if Congress cuts taxes, government is likely to take in more in 2007 than in 2006 – it just will not take in as much more as it would have otherwise.

Another scam the president and his budget cronies favour is price-tag swapping. Here Mr Bush picks out a high-priced item sudh as a fat package of lamp chops or the Iraq war. When the security camera is pointed elsewhere, he peels off the $200bn price tag and attaches a lower one removed from educational reform or something in the congressional pork aisle. Should a subordinate threaten to speak to security, the ringleader deals with the problem Tony Soprano-style. For instance, when the government’s chief Medicare actuary came up with a too-high price tag of $551bn for Mr Bush’s Medicare prescription drug bill, members of the president’s gang – who preferred an estimate closer to $400bn over 10 years – made him an offer he could not refuse. Only after sceptical Republican legislators fell into line and the bill passed did it emerge that the accountant, Richard Foster, had been threatened with the sack if he revealed the higher figure.

Presidents set a moral example, and given the message Mr Bush has been sending, it is no surprise that the problem of “inventory shrinkage” has spread to Congress as well. For example, Republicans in the Senate recently proposed a novel way to pay for extending Mr Bush’s tax cut on investment income, which will otherwise expire in 2009. They want to allow the wealthy – and not just the middle class – to convert their private retirement accounts to a type that is not taxed when funds are withdrawn at retirement. This would produce a temporary revenue boost, because taxes are due on the initial conversion, but would be a big money-loser for government in the long-run. With this swindle – paying for one tax cut for the rich with another tax cut for the rich – Bushonomics has reached its larcenous apogee.

So, if it turns out that the charges are true, where might Mr Allen have learnt that you can get the things you want without paying for them? Let us just say it was not at church.

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