Logic Is a Stranger to Tax-Cutting Plans : Congress may be courting an explosion of national debt

The logic of deficit reduction dictates that spending be cut and that taxes be maintained until the federal government can balance its budget and begin to draw down its accumulated debt. Only at that future point does it make sense to ease taxes. But congressional Republicans just don’t get it: They are focusing their energies on tax cuts, which would put the nation deeper in debt. With the debt already at nearly $5 trillion, do we need still more red ink?

Most Republicans in Congress seem blind to that logic as the Senate Finance Committee, starting today, takes up various proposals to cut taxes by $245 billion in seven years. The goal is to have a balanced budget by the year 2002. A good intention.

$93-BILLION DEBT HIKE: The GOP thinks it can reach that goal by cutting spending and taxes at the same time. Though the popular perception is that the Republicans are proposing to pay for the tax cuts by slashing programs such as Medicare, they actually are counting on a projected $170 billion in “fiscal dividends” from lower interest payments and higher real economic growth to make up for some of the lost tax revenues. But that would leave $75 billion in proposed tax cuts not covered by new income. That $75 billion, plus $18 billion in interest costs, would add $93 billion to the national debt. These calculations, by the way, were worked up by the Republicans’ own congressional budget analysts.

Where is the sense in a budget that reduces the yearly deficit as it adds to the nation’s accumulated debt because of tax reductions? Congress’ “budget hawks” appear to be cynically pursuing politics over fiscal reason. However, even if a tax cut clears Congress and is signed by President Clinton (he promises a veto), it cannot be enacted unless the Congressional Budget Office certifies that the budget plan would balance the budget by 2002.

Here are three of the tax proposals that are being heavily contested, and for good reason.

Revision of the Earned Income Tax Credit: This credit, now 20 years old, functions as a tax refund for the working poor. Since it was created, with bipartisan support, it has helped encourage work and discourage dependence on welfare, benefiting households with incomes of up to about $28,000. In September, the House Ways and Means Committee endorsed a $23-million cut in the credit over seven years--in effect urging a tax hike of that amount for the beneficiaries. Senate Republicans want to cut $40 million. In both cases, bad fiscal and social policy.

Child Tax Credit: Senate Republicans are proposing a permanent tax credit of $500 per child (up to age 18) for single-parent households with taxable incomes of up to $75,000 and two-parent households with incomes of up to $110,000. The House version would extend credits in these amounts to households with total incomes of up to $200,000.

The child tax credit, though a centerpiece of the GOP tax plan, would not have enormous impact across the spectrum of American households: Thirty percent of households consist of only one person and nearly half of couples have no dependent children.

Capital Gains: The idea is that if taxes were reduced on profits from selling securities, real estate and other assets, new money would be released for investments and thus stimulate the economy. This would most benefit wealthy people who hold securities and would spur paper--not necessarily capital--investments. Stock and bond investments certainly don’t need a stimulus in the current bullish market. Republicans want to drop the top rate for individuals to 19.8% from the current 28%. For corporations, the top rate would fall to 28% from 35%.

Poll after poll has shown that Americans put priority on deficit reduction, not tax cuts. Reducing the annual deficit should indeed be a goal of the federal government, but one achieved without damaging families already on the edge and serving up disproportionate advantages for the wealthy.