Tax Cuts: the Silly Season

When President Clinton first entered the White House in 1993, his budget included a large tax increase that, four years later, helped to balance the country’s books. His final budget proposal, to be issued in February, will include a tax cut--or a spending program masquerading as a tax cut--that may well return the government to deficit spending. Clinton’s plan might be much smaller than tax cuts proposed by GOP presidential contender George W. Bush but it’s equally reckless in fiscal terms.

What the president is planning, said Clinton economic guru John Podesta, is to revive last year’s proposal calling for a subsidized retirement account and financial help for people without health insurance. Styled as a tax cut, the plan is largely a spending measure aimed at income redistribution.

Nevertheless, the $322-billion price tag is tiny compared with Bush’s tax cut plan, which would totally consume the anticipated $1-trillion non-Social Security surplus over the next 10 years and then some.

Sen. John McCain (R-Ariz.), Bush’s main rival, has trotted out a somewhat smaller plan, while perennial candidate Steve Forbes would flatten the income tax and abolish inheritance and capital gains levies.

On the Democratic side, Vice President Al Gore opposes a broad tax cut, preferring Clinton-type narrowly focused cuts. And Bill Bradley would spend the budget surplus on new government programs and, if needed, close corporate tax loopholes to cover a revenue gap.

What’s so objectionable about all the tax cuts is that they’re not only lousy economics but dumb politics. The issue hardly registers on the scale of public opinion. When asked, Californians would much prefer better schools and roads than politicians delivering tax cuts during an election year. When “Bush, McCain Snipe Over Tax Cut Plans,” as a Times headline said Wednesday, the taxpayers yawn. A tax cut debate is simply not getting traction among the electorate.

Nor is there a need for the economic stimulus that tax cuts provide. Consumers are already spending as if there were no tomorrow.

Meanwhile, the surplus that the tax cuts--and the spending plans--tap into is already being spent by Congress on other things. Never mind that the $1-trillion pot is nearly empty and will be filled only if the extraordinarily optimistic predictions about economic growth come true.

Congress and the White House agreed in 1997 to set spending limits but have broken those limits ever since. Not only are they spending the surpluses, according to the Congressional Budget Office, they are dipping into the Social Security fund as well, even though the fund had been declared untouchable.

That is not to say that a case cannot be made for reducing the tax burden. But it would have to come in the form of tax rebates from a non-Social Security surplus already earned. Social Security surpluses should continue to be used to replace the IOUs the government has been putting into the fund while using the cash for general expenditures.

Clinton’s tax cuts may be better targeted than Bush’s, but both Republicans and Democrats threaten the precarious budget balance by proposing tax cuts or spending programs they can’t pay for.