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water to flow—clearly doesn’t work on its own, they reasoned. Beyond that, you have to convince people that the future is bright—that they can afford to buy that new car or flat-screen TV after all.
    Without that confidence, those who get the stimulus money will just thank their lucky stars and use the money to pay down their credit cards or student loans or mortgages or car loans or home equity lines of credit. After all, who knows if a windfall like that will ever come again? And none of these uses for the money will do the slightest to stimulate the economy.
    The need was not for a one-shot stimulation of the economy but for some long-term basis for rationally buying into the idea that the economy was recovering.
    That’s the key: it all comes down to confidence. If you’re afraid you’re going to lose your job, you save your money and don’t spend anything you don’t have to. That makes the economy drop even more—and only increases the chance that you might actually lose your job!
    If Obama had offered the prospect of a real change in the economic environment, rational people would have responded. A short-term rise in sales due to a stimulus or a tax cut wouldn’t be enough to encourage discerning businessmen to invest in new plants or equipment. But how about a cut in the capital gains tax? Or a cut in the income tax? If you knew that in the future you would have to pay only 10 percent—not the current 15percent—in capital gains taxes on your investment earnings, wouldn’t that encourage you to invest? If you knew you’d have to pay only 30 percent of your income in taxes—not the current 35 percent—wouldn’t that encourage you to spend more?
    One-shot tax refunds are as useless as one-shot spending increases. But permanent tax cuts, which can encourage long-term growth, send a real message to rational people that better times are coming.
    Anxious to use the crisis as a pretext to expand government, Obama criticized the idea of permanent tax cuts, particularly for the wealthy, saying that it was just this sort of policy that got us into the current mess. He was determined, he insisted, to break with the “failed approaches” of the past.
    But it wasn’t George W. Bush’s tax cut that caused the recession. His tax cuts pulled us out of the recession of 2001–2002, which hit us right after Osama bin Laden flew a plane into the global economy and knocked it down. Largely because of these tax cuts, the economy grew for five years.
    The Bush tax cuts didn’t cause the budget deficits of the first decade of this century either. Even though Bush cut taxes for the rich (the top 10 percent of earners), their share of total tax payments rose from 64.89 percent in 2001 to 70.79 percent in 2006. 49 In total, the richest 1 percent of the nation actually paid more money overall because of Bush’s policies—an amount rising from $301 billion a year in 2001 to $408 billion in 2006. 50 In fact, it’s precisely because the drop in tax rates stimulated the economy that the lower rates brought in more revenue than the higher ones had.
    But Obama wouldn’t let all those inconvenient facts get in the way. He wasn’t about to give up his big chance to use the crisis as an excuse to grow the government. And he certainly wasn’t about to use it to shrink it!
    OBAMA TRASH-TALKS THE ECONOMY
    Even with top-heavy majorities in both houses of Congress, Obama couldn’t be absolutely certain that he’d manage to get his big spending legislation passed. In the House, of course, he could do whatever he wanted: His majority there would pass anything, and the House Republicans—the best-dressed hostages in the world—could only sit back and watch the legislation sail through.
    But the Senate was a different story. There, too, he had an ample majority, but there were still forty-one Republicans that stood in his way. To bring his proposals to a vote, he needed sixty senators—and that means he couldn’t do it with