Neoliberalism Comes to Domestic Policy

Understandably, Europeans think of George W. Bush as a president focused on foreign policy. In the three years between al Qaeda's attacks on the United States and his re-election, Bush invaded two countries, reworked America's global alliances, and brought to crisis the traditional relationship across the North Atlantic. It is unlikely that he would have been re-elected without the air of perpetual crisis that his foreign policy brought to the recent presidential campaign.

In 2000, however, Bush was elected as a candidate of domestic policy. His major achievement in the year before September 11, 2001 was slashing tax rates for the richest Americans, especially the federal tax on inheritances, which is the United States' most important tax on wealth rather than income. In 2005, we can expect to see the second Bush administration pick up the domestic mission of its first year, changing the structure of American taxation and social insurance.

Does that mean Europeans can breathe a sigh of relief and go back to the long and crooked road of completing and expanding their union of nations? No, quite the opposite. The most obvious reason is that the Iraq adventure will continue, with all its implications for the politics of the Middle East and the rest of the Islamic world -- which tend to pitch up on Europe's doorstep. The more basic reason, though, is that Bush's domestic policies will deepen the division between the European and American social models, putting the two continents on different paths for the coming decades.

The Bush agenda for the second term has two main aims. First, the administration wants to do away with Social Security, the national pension system that has been the keystone of the American welfare state since the 1930s. Bush urges replacing the program with private savings -- basically returning to the arrangements of the nineteenth century. At the moment, it is impossible to say whether the Bush strategy will succeed. With Republican majorities in both houses of Congress, Bush can get his way unless popular resistance makes the price too high for Republicans.

The American right has hated Social Security since it was enacted, regarding it as a little bit of Europhilic socialism that saps the free-enterprise spirit of the United States. For many decades, though, the program was unassailably popular: it guarantees some income and a modicum of dignity in old age. It has moved the elderly from a high rate of poverty to quite a low rate. In short, it has made American society more decent and individual lives less fearful. In the face of this support for the program, the Bush administration has launched a massive campaign to convince the public that Social Security is headed toward fiscal disaster for demographic reasons. In fact, actuarial estimates suggest Social Security is probably in pretty good shape, and much better off than Europe's more generous pension systems. The administration, though, demonstrated before the Iraq War that it will lie and spread fear to get its way.

Bush's second aim is to deepen his tax cuts for the wealthy, and make permanent some cuts that he advertised as temporary when they were first passed. If he succeeds in both aims, American society will become much more unequal and individual lives more uncertain. Inherited wealth and income from assets will be essentially untaxed, wages and consumption will be taxed relatively heavily, and there will be no guarantee of a minimum income in retirement. At present, the United States bears a recognizable resemblance to Europe, although with more free-market features. If Bush's domestic agenda prevails, the two will become different kinds of societies, with differences akin to those between, say, Germany and Brazil. That would be a harder, sadder world.