I’ll See Your Tax Cut, Raise You a Tax Cut : But does transparent politics make for good economics?

Tax cuts have become the rage in Washington since the November elections. Now there’s even dueling tax cuts. First it was the Republicans with their “contract with America.” Then, on Thursday, President Clinton put forth his version in a brisk but chockablock address to the nation. Now Rep. Richard A. Gephardt (D-Mo.), the next House minority leader, and Sen. Phil Gramm (R-Tex.), a presidential contender, each have put out tax cut proposals of their own.

Surely looks like America is going to wind up with some kind of tax cut, even though a lot of economic experts--even some in the Clinton Administration--question whether this is what the nation needs now. Clinton’s “middle-class bill of rights,” the Republicans’ “contract” and the other plans all raise a common question: How can the proposed tax cuts, spread over five years, be offset by real reductions in federal spending? The worry is that in the partisan competition to cut taxes, deficit reduction will be shoved to the side. Deficit reduction should remain a top priority; after all, it’s working.

Amid Washington’s fever, a number of concerns must be addressed. Here are a few of them:

FINANCING THE CUTS: Clinton’s plan would cost $60 billion in lost revenues over its first five years, compared to $147 billion over five years for the Republican plan, which includes a capital gains tax cut. These must be made up by comparable excisions elsewhere in the discretionary portion of the budget. Good luck.

THE ECONOMIC TIMING: With the economy recovering rather nicely, do we need a tax cut now? A Wall Street Journal/NBC poll found 58% to 38% think reducing the deficit is more important than cutting taxes. Why not simply cut spending and apply those savings to reduce the deficit?

THE INFLATION FACTOR: Might a tax cut, assuming taxes are reduced more than a few hundred dollars per family, fuel spending and thus inflation? That in turn might prompt the Federal Reserve to raise short-term interest rates yet again. Oh please, no.

WHAT MIDDLE CLASS?: What precisely is the middle class these days? Clinton’s child credit would apply to families with incomes up to $75,000. The Republican child credit would apply to families with incomes of up to $200,000. This may be too high in some regions, or not high enough in others, such as in California or New York.

THE NUMBERS GAME: Is this just about creative math? Are tax cuts the same old Washington political game with merely a new theme? The President insisted in his Thursday night address, “This is not about politics as usual.” Clinton’s campaign promises were threefold: deficit reduction, tax cuts and investment in education and training. He delivered on the first and he now wants to do the same on the other two, especially with the reelection showdown only two years down the road. The Republicans too have their eye on the White House; their “contract with America” helped them take over Congress.

The public is skeptical and angry. It wants to get the American house in order, but it is sick and tired of phony promises. With both sides of the political aisle offering the elixir of tax cuts, wise voters should pause and ask the hard question: Is all this tax cut stuff too good to be true? If the answer is yes, maybe it’s the wrong move at the wrong time.