Raiding Medicare to Lower Taxes : GOP’s tilt to the well-off should yield to a realistic spending-cuts package

House and Senate Republicans appear to be moving rapidly toward a consensus on a tax-cut plan that would seek to reduce federal revenues by as much as $250 billion over seven years, a figure more than $100 billion below what House members wanted.

The plan would have two key components: a halving of the current 28% capital gains tax for individuals, and a somewhat deceptive $500-a-child tax credit for families with incomes of up to $200,000 a year, deceptive because a large number of low-income families pay too little in taxes to qualify. To fund all this, the conferees propose to cut the projected growth rate in Medicare outlays. They also project a large “fiscal dividend” based on a hoped-for decline in the interest rates the Treasury pays when it borrows.

Easier said than done, of course. Sen. Bob Packwood (R-Ore.), chairman of the Finance Committee, warns for example that when it comes to an actual vote on the tough question of reducing the growth rate in Medicare spending, a lot of tax-cutters might head for the exit. A new Associated Press poll again supports the political realism of that view, finding that nearly three-quarters of those asked would rather give up some tax cuts than see big cuts in Medicare spending.

Any responsible plan to rein in the deficit must obviously include steps to curb the growth in Medicare spending. At the same time it’s increasingly evident that the public will have to be persuaded of that need as part of a larger bipartisan effort to control inexorably rising health costs.

What the Republicans are drafting is a blueprint for tax cuts, with implementing legislation still to be agreed to. Senate Republicans had wisely made their tax cut plan contingent on adoption of a budget that the Congressional Budget Office would certify as in fact likely to eliminate the deficit. In other words, absent a realistic spending-cuts package, tax cuts would have to wait. The Senate should cling to that requirement.

Slashing the deficit would bring its own broadly based rewards, led by lower interest rates and greater availability of private credit and opportunities for economic growth. That, and not tax cuts heavily tilted to the well-off, must remain the true priority.