March 9, 2001


Commentary

Unkindest Cut

Bush's plan doesn't do much for the middle class

By Albert R. Hunt

George W. Bush's initial address to Congress was perfectly fine. But he doesn't fill a room or a chamber.

This isn't fatal. Harry Truman also lacked presence, but today he's considered one of America's greatest presidents. Lyndon Johnson was a larger-than-life presence and he left the White House a broken man.

But President Bush's ability to rally public opinion behind his big tax cut and budget priorities will be limited. His address the other night was most effective as a disarming mechanism. It was mercifully shorter—and less interesting—than Bill Clinton's addresses, though strikingly similar in tone.

The most persuasive rationale he offered for his big tax cut—the centerpiece of the first year of the Bush presidency—is that there's no reason not to do it.

This isn't to suggest the president isn't going to get much of what he wants. It is rare that a new president doesn't achieve his top priority his first year. The last time one didn't was when Jimmy Carter lost his controversial and complex energy initiative in 1977.

And few politicians will win profiles-in-courage awards for cutting taxes. The once-hot controversy over the size of his tax cut continues to diminish as surplus projections soar. In a recent appearance at the Business Council, attendees said Federal Reserve Chairman Alan Greenspan worried about the prospect of large surpluses in the years ahead.

Still, the rationale for the precise Bush tax cut is elusive and Tuesday night's speech didn't do much to clarify. It's a multiple-choice question. There should be a $1.6 trillion tax cut because: (a) it's necessary to stimulate a weak economy, (b) we're overtaxed, (c) we must prevent profligate politicians from spending the surplus, or (d) it will produce a more productive long-run economy.

If we need to "jumpstart" the economy, as Mr. Bush suggests, tax cuts would be designed differently. More of the money would go to middle-class and poorer Americans who would spend it right away, providing stimulus.

The overtaxed argument is bogus. Taxes are higher in almost every other industrialized nation in the world. Middle-income Americans are taxed at a lower income-tax rate than at any time in the past quarter-century. Indeed, even the wealthiest taxpayers—the top 1%, whose income and wealth soared in the 1990s—are paying a declining share of their income in taxes.

As for the "let's cut taxes so they can't spend it" position, it's Mr. Bush who argues, with passion, for spending increases in education and health research. This is a White House that turns a deaf ear to these old Republican nostrums about abolishing departments and programs. It's a myth that greedy politicians are trying to spend away these new surpluses. Federal spending this year will total 18% of the nation's gross domestic product, a precipitous drop from 22.3% in 1992, the last year a George Bush sat in the White House.

The most compelling case tax-cut supporters make is that lower taxes encourage long-run economic growth and higher rates stifle enterprise. Why then does the administration insist that any tax cut with more or less than a $1.6 trillion price tag is a problem? It's instructive to remember that the current top rate rose to 39.6% when Bill Clinton's first budget measure was narrowly enacted by congressional Democrats in 1993. In almost eight years the unemployment rate dropped to 4.2% from 7.1%; 22 million new jobs were created; new businesses started at a record clip, and the stock market tripled. We could use more stifling like that.

Although the pitch that this is a working- and middle-class tax cut is a sham, the White House reasonably expects some short-term successes.

That's because of the exceptionally tough and able new chairman of the House Ways and Means Committee, Bill Thomas. The White House wanted to build on Mr. Bush's tax cuts through this weekend and hoped the committee would hold off writing a bill until next week. Mr. Thomas demurred and today will start drafting a measure to cut rates and boost the child credit. The Californian will offer some cosmetic changes to deflect the tilt toward the rich, but very few Democrats will go along.

There are some nervous moderate Republicans. Delaware Rep. Mike Castle suggested the president is going to have to "scale back" the size of his tax cuts, and New York Rep. Jack Quinn worries about its shape: "The litmus test for me is what it does for the blue-collar guy back in Buffalo." The answer is very little.

But most moderate Republicans will be like Connecticut's Chris Shays, who buys into the whole package, noting how popular it is with his upscale Greenwich constituents. This isn't surprising, because on tough issues, Democratic Rep. Barney Frank notes, moderate Republicans follow a predictable path: ineffectual protest, abject surrender and then denial.

With the support of the abject surrenderers, the first phase of the tax cut is expected to clear the Republican House soon and be sent to the Senate. The White House hopes that'll pressure the Senate to action, and that the prospects of a second tax measure, including the estate tax and the marriage penalty, will prevent the rate cuts from turning into a Christmas tree.

The Republicans will largely prevail on size. The surplus projections, Mr. Greenspan's embrace and the political reality that tax cuts usually turn into bidding wars (remember 1981) will force Democrats to concede.

But if critics are losing on the size, they are winning on the shape. Even some prominent Republicans now privately acknowledge that politically they cannot afford such bonanzas to the very wealthy as abolishing the estate tax or cutting the top rate all the way to 33%. There will be compromises.

Time will not be kind to Mr. Bush's pitch. On Tuesday night he claimed the average American family would get a $1,600 tax cut and paraded the usual props in the gallery—the hard-working Ramos family—who'd get a $2,000 tax break. The facts, as reported by Citizens for Tax Justice yesterday: Taxpayers in the lowest 60% of the income scale—a majority of Americans—would get only 12.7% of the Bush tax cuts and the average reduction would be $256. The wealthiest Americans—the top 1%—would get around 45% of all the cuts, or more than $50,000 a year. The Ramoses looked pleased, but the real winners were those sitting in the front row: the multimillionaires in the Bush cabinet.

Mr. Hunt is executive Washington editor of The Wall Street Journal.

This articles is reprinted with permission from OpinionJournal.com, a web site from Dow Jones & Company, Inc.

Comments Return to the Frontpage