Tax cuts likely, but will they be enough?
It appears Congress is ready to approve more tax cuts, but far less than President Bush has proposed as a badly needed economic stimulus.
Opponents of tax cuts, mostly Democrats, say any more tax cuts will only speed up the increase in federal deficits. Their arguments are hollow. Here's why:
Deficits are caused by spending more than you have. At the end of the Clinton administration, a strong economy that had roared for nearly a decade had generated so much new revenue for the federal government that out-of-control spending scarcely mattered. The plain fact is there was so much money rolling into the U.S. Treasury that it just wasn't possible to find enough ways to spend all of it immediately. As a result, deficits shrank dramatically.
A tax cut -- and more increases
But the kick start of the economic boom of the 1990s was the tax cut of 1981 at the start of the Reagan administration. That tax cut, by the way, was 10 times larger than the one recently approved by the U.S. House of $550 billion over 11 years -- considerably less than the $726 billion package Bush wants.
In addition to the increased business investment, new jobs and higher productivity that occurred after the Reagan tax cut, federal revenue received big boosts in the form of tax increases -- three in the 1980s and two in the early 1990s -- that siphoned off billions of taxpayers' expanded earnings.
Democrats and others who now claim that the Bush tax cuts would deepen federal deficits not only are ignoring the historical reality of the stimulus effect, they are totally disregarding the main reason we have deficits in the first place: spending more than we have.
If you look at spending plans for the future, even the Bush administration favors growth in federal programs. However, the Bush spending increases are far less than the grandiose programs getting lip service from Democrats, including those who want to be president.
Consider Dick Gephardt's federalized health-care idea.
He would like to scrap all the proposed tax cuts and instead spend the money on socialized medicine. Surely even Gephardt understands that nationalization of the medical industry -- doctors, hospitals, pharmaceuticals -- would cost far more than the intended savings of tax cuts currently under consideration. So much more, in fact, that Americans would face the prospect of enormous tax increases just to pay the nation's medical bills.
A little more than a week ago, the House approved a $550 billion tax cut, a scant 1.8 percent reduction in overall federal taxation over the next 11 years, or an average of $50 billion a year. Any corporation in American would consider budget cuts of less than 2 percent a year to be readily doable.
Putting the blame in the wrong place
But that's not the way opponents of tax cuts see it. Instead of adjusting spending when there is less revenue, too many in Congress blithely vote for new programs and more pork-barrel projects -- and then blame the growing federal deficit on tax cuts or somebody else's out-of-control spending.
Last week, the Senate approved its version of tax cuts -- only $350 billion over 11 years -- that restores the backbone of the Bush plan: elimination of taxes on stock dividends.
The bad news is the economy needs as big a boost as it can get right now, and the overly cautious plans under consideration in the House and Senate are far too timid. The good news is that Americans will likely see some form of additional tax relief in the not-too-distant future.
Will it be too little too late?