Why the Fiscal Red Sea May Never Part : Don’t play games with the federal budget

Cut taxes, feed the deficit.

The simple Orwellian insanity of this conjunction of contradictory public policies seems utterly lost on too many members of the U.S. House of Representatives. Indeed, the lower chamber of Congress appears to be stampeding toward enacting a massive tax cut package this week. Tragically, if approved by the Senate and not vetoed by the President, the House version of utopia could wind up costing America families a whole lot more than the modest $500 rebate that is being cynically dangled before unknowing voters.

But go for political theater and rhetoric, forget fiscal prudence. Yes, it’s voodoo economics all over again, folks, especially now that moderate Republicans have caved in on the GOP plan.

The House is scheduled to vote this week on the five-year, $189-billion tax cut plan. It includes an array of tax relief measures for both individuals and businesses. But in poll after poll Americans are found to favor deficit cutting over tax cuts. The reason: They’re not stupid.

For a time so were some Republican House members. Together with conservative Democrats, they were threatening to block the rebate tax plan unless it included a marriage of tax cuts and a specific schedule of spending reductions to move the federal deficit to zero by the year 2002.

Ah, but beware of phony compromises. On Monday House Speaker Newt Gingrich agreed to the diciest of ties between the two goals. The deal was to merely set a “path” toward a balanced budget by allegedly requiring Congress to pass sufficient spending cuts to stay on track. It was a superficial, politically expedient but fiscally vacuous compromise that lacked any enforcement mechanism. In truth it contained less teeth than the average goldfish.

To his credit, Rep. Glen Browder (D-Ala.) rightly criticized the compromise as “a fig leaf.” On Tuesday the House Rules Committee voted down an effort by dissident Republicans to narrow the proposed $500 tax credit to families earning up to $95,000 a year, instead of the proposed $200,000.

This lunatic package also includes some arcane tax cuts for businesses that ought to be held up in the sunlight and sprayed with disinfectant. For example, as Times staff writer James Risen reports today, the bill contains an obscure provision that even many Republicans claim not to understand. It’s called a “neutral cost recovery” provision, and the best anyone can figure out is that it would add substantially to the federal deficit by allowing business to sharply increase their tax write-offs when they invest in plants and equipment. After slightly increasing government revenues for the first five years, it would begin to cost many billions of dollars a year after that. Even some Republicans are chilled by the eye-popping estimates. But are they doing anything? No. It’s part of the House GOP’s “contract with America,” so it stays in the bill.

The problem is, as Washington plays games with the tax cuts, the world is watching carefully. That’s bad for the United States. A fiscal house out of order is not exactly the picture Washington should be projecting. The seeming lack of discipline on deficit reduction and the budget may be contributing to the current weakness of the dollar.

The nation has had to pay dearly for the jerry-built prosperity of the Reagan years, when supply-side economic theory led to record deficits. The last thing America needs is another round of ill-conceived tax cuts that deepen the red ink. We’re almost drowning already.