I wasn’t so sure. “Sometimes economists are wrong,” I said in a speech outlining my economic policy in December 1999. “I can remember recoveries that were supposed to end, but didn’t, and recessions that weren’t supposed to happen, but did. I hope for continued growth—but it is not guaranteed. A president must work for the best case, and prepare for the worst.”
The centerpiece of my plan was an across-the-board tax cut. I believed government was taking too much of the people’s money. By the end of 1999, taxes accounted for a higher percentage of GDP than they had at any point since World War II. The government was supposedly running a large surplus. I knew where that money would go: Government would find a way to spend it. After all, Congress and President Clinton had agreed to increase nonsecurity discretionary spending by more than 16 percent in fiscal year 2001.
I had another reason for supporting tax cuts. I worried that we could be witnessing another bubble, this one in the technology sector. Larry Lindsey, my top economic adviser, believed the country was headed for a recession. If he was right, the tax cuts would act as a vital stimulus.
Sure enough, a recession officially began in March 2001. The New York Times considered the downturn a positive development for me. One article ran under the headline “For the President, a Perfect Time for a Recession.” It sure didn’t feel that way to me. I couldn’t help but note a strange irony of history. In 1993, Dad had left behind an economy much better than the public realized. Now I had inherited one much worse.
With the economy tanking, the tax cuts took on a new urgency. I pressed Congress to move quickly. In June 2001, I signed a $1.35 trillion tax cut, the largest since the one Ronald Reagan signed during his first term. The bill reduced marginal tax rates for every income taxpayer, including millions of small business owners;* doubled the child tax credit from $500 to $1,000; reduced the marriage penalty; and eliminated the lowest tax bracket, which removed five million low-income families from the tax rolls. The bill also phased out the death tax, a burden that was unfair to small business owners, farmers, and ranchers. I figured Americans had paid enough taxes while they were living; they shouldn’t be taxed again when they died.
Signing the 2001 tax relief bill. White House/Paul Morse
I was optimistic that consumers and small businesses would spend their tax relief to help pull the economy out of the recession. But we were in for another massive economic hit that no one expected.
The toll of 9/11 will always be measured by the 2,973 lives stolen and many others devastated. But the economic cost was shattering as well. The New York Stock Exchange shut down for four days, the longest suspension of trading since the Great Depression. When the markets reopened, the Dow Jones plunged 684 points, the biggest single-day drop in history—to that point.
The impact of the attacks rippled throughout the economy. Tourism plummeted. Several airlines filed for bankruptcy. Many restaurants sat virtually empty. Some hotels reported business being down as much as 90 percent. Manufacturers and small businesses laid off workers as skittish buyers canceled their orders. By the end of the year, more than a million Americans had lost their jobs. “The United States and the rest of the world are likely to experience a full-blown recession now,” one economist predicted.
That was what the terrorists intended. “Al Qaeda spent $500,000 on the event,” Osama bin Laden later bragged, “while America … lost—according to the lowest estimate—$500 billion.” He outlined what he called a “bleed-until-bankruptcy” strategy and said, “It is very important to concentrate on hitting the U.S. economy through all possible means.”
I saw it as my responsibility to encourage Americans to defy al Qaeda by keeping the economy moving. In late September 2001, I flew to Chicago’s O’Hare Airport to promote the recovery of the airline industry. I walked onto a riser in front of 737s from American and United Airlines. With six thousand airline workers in the audience, I said, “One of the great goals of this nation’s war is to restore public confidence in the airline industry. It’s to tell the traveling public: Get on board. Do your business around the country.”
Later, I would be mocked and criticized for telling Americans to “go shopping” after 9/11. I never actually used that phrase, but that’s beside the point. In the threat-filled months after 9/11, traveling on airplanes, visiting tourist destinations, and, yes, going shopping, were acts of defiance and patriotism. They helped businesses rebound and hardworking Americans keep their jobs.
I was surprised by critics who suggested I should have asked for more sacrifice after 9/11. I suppose it’s easy for some to forget, but people were making sacrifices. Record numbers of volunteers had stepped forward to help their neighbors. Even our youngest citizens pitched in. Students across the country donated $10 million—often one dollar at a time—to a fund we created to benefit Afghan children. In my 2002 State of the Union address, I launched a new national service initiative, USA Freedom Corps, and called on all Americans to devote four thousand hours to serving others over the course of their lifetimes.
The bravest volunteers were those who risked their lives by joining or reenlisting in the military, FBI, or CIA. Hundreds of thousands made that noble choice in the years after 9/11. Many served multiple tours of duty away from their families. Thousands of our finest citizens gave their lives. To suggest that this country didn’t sacrifice after 9/11 is offensive and wrong.
Short of a military draft—a step I strongly opposed—I’m not sure what more I could have done to encourage sacrifice. This was a different kind of war. We didn’t need riveters or victory gardens like we had during World War II. We needed people to deny the enemy the panic they sought to create.
I’ve always believed that the critics who alleged I wasn’t asking people to sacrifice were really complaining that I hadn’t raised taxes. “Taxes are more than a device to raise revenue,” one Washington Post columnist wrote. “They are a statement of consensus on national purpose.” I reject the premise that higher taxes would have led to stronger national purpose. I am convinced raising taxes after the devastation of 9/11 would have hurt our economy and had the opposite effect.
September 11, 2001, changed American life; it also transformed the federal budget. The projected surplus of early 2001 had been based on bullish forecasts for strong economic growth. The bursting of the tech bubble and subsequent recession significantly lowered those projections. The economic damage caused by the terrorist attacks drove them down even more. Then we faced the essential cost of securing the country and fighting the war on terror. In November 2001, Mitch Daniels, a fiscal hawk from Indiana who ably led my Office of Management and Budget, delivered the official report: The so-called surplus had vanished in ten months.
For years, I listened to politicians from both sides of the aisle allege that I had squandered the massive surplus I inherited. That never made sense. Much of the surplus was an illusion, based on the mistaken assumption that the 1990s boom would continue. Once the recession and 9/11 hit, there was little surplus left.
By the end of 2002, the recession was technically over, but the economy remained sluggish. In early January 2003, I called on Congress to accelerate the tax cuts from 2001, which had not fully taken effect, and to pass further tax cuts that would encourage business investment and job creation.