Taxing Common Sense

Senate Democrats and moderate Republicans are finally showing a little backbone. Last week they halved President George W. Bush’s latest tax-cutting plan, which the House of Representatives already passed in its whole $726 billion glory. In political terms, the Senate has successfully emasculated the president’s proposal. But, in straight policy terms, the Democrats didn’t do nearly enough; the nation will still have to accept a several hundred billion dollar tax cut and an even wider budget gap. This tax cut, no matter how watered down, should not be passed.

Even after the Senate’s modifications, the top of the income pyramid will once again get the royal treatment, and the country as a whole will get royally punished. Apparently, Bush, and even the Senate Democrats who will still pass a huge tax cut, believe that by handing money to the rich, we can rev up the whole economy. However, any form of this multi-billion dollar tax cut would do a lot to undermine equity, and nothing to speed up economic growth.

The largest problem with all the plans on the table is that only a fraction of the stimulus would arrive before July 2004. That means billions in tax cuts, and deficits, will be coming our way over the rest of the decade, when American economic prospects will be a lot rosier. Economic stimulus is supposed to be temporary. But it looks like the United States will have to endure a package of permanent measures: accelerating the implementation of the 2001 tax cut and slashing the dividend tax. As a result, any stimulus will not only be too late to do any good, it will actually fuel inflation and push up interest rates.

There are also plenty of problems our government needs to solve to ensure robust, long-term economic performance before it passes another tax cut. The continual degradation of our natural resources as a result of lax environmental protection will ultimately have very adverse consequences on our economic growth. Or consider the highly unequal nature of opportunity for America’s children. Sure we have universal primary and secondary school, but when children don’t have access to preschool or medical coverage, that hurts their chances at success and undermines the nation’s future productivity. Tax cuts deprive the government of the resources it needs to invest in America’s economic future. Democrats should know this.

By voting for a toned-down version of Bush’s proposal, Senate Democrats would be endorsing the president’s discredited supply-side agenda. For supply-siders like the president, the answers are always simple: cut taxes and shrink government. But the real world is more complex than that. In the short-run we need economic stimulus. In the long run, we need to make essential investments in the public sphere, not just the private sector. Bush’s plan, and the smaller Senate version, does neither. It is the same story as the 2001 tax cut. But as Bush himself said in a Sept. 17 speech in Nashville: “Fool me once, shame on—shame on you. Fool me—Fool me, can’t get fooled again!”

—Eoghan W. Stafford is an editorial editor.