Whether this year's big tax cut ends up at the President's goal of $1.6 trillion over ten years, or the Senate's $1.2 trillion figure, one thing is certain: fiscal discipline will be almost impossible to maintain next year and the year after. Because the tax cut is both large and skewed toward a narrow constituency, every cause and interest group in Washington that didn't get a piece of this year's action will demand and receive its fair share of the largess in the years to come.
President Bush argues that his tax cut is necessary to prevent Congress from otherwise spending the projected budget surplus. However, Bush has it exactly backwards. His tax cut won't reign in spending at all. Instead, it gives every constituency that didn't get anything an enormous reason to fight budget cuts in its area and to lobby for "me too" tax breaks.
Of course, the really big problem with Bush's tax cut is that its cost could starve big-picture efforts to reform Social Security and Medicare in a progressive (as opposed to an austere and punishing) manner, or to extend health insurance to the uninsured. But Bush's tax plan would greatly increase the probability that we nickel and dime ourselves back into deficits in a myriad of other ways.
Let's suppose the tax cut ends up closer to Bush's figure, say $1.5 trillion. Now, after that passes, health care advocates are supposed to reduce their annual requests for hospitals or prescription drugs? No way. They'll say, "you gave away $1.5 trillion to those other people, now surely you can support our worthy causes at a corresponding level of generosity."
Likewise, Congressional appropriators (who control funds for national defense, education, science, etc.) will not readily support budget cuts when so much was spent for other purposes.
What self respecting seniors' organization could abide strict austerity measures in Medicare or Social Security -- even knowing how important cost control in those programs will be in the long run -- if we have just spent $1.5 trillion on a tax cut for immediate gratification?
In Washington, fiscal discipline is indeed possible, but only if the restraint is broadly shared. The flip side is that fiscal laxity always ends up being spread just as widely. When the inevitable logrolling is done and every aggrieved party gets its share, the final cost of the tax cut, of course, will be much higher than $1.5 trillion.
The problem with Bush's plan is that it is not part of a complete package. It has nothing for Social Security, a pittance for Medicare, nothing for the President's defense initiatives. It skimps on education and health coverage. It gives nothing to the working poor, very little to single people, and not all that much to most families with incomes under $40,000 a year. It doesn't address many tax issues important to the business community, retirement savings advocates, tax simplification advocates, and so on down the line.
The anti-government folks who are behind Bush's tax cut don't get it. After they successfully pushed "starve the government" tax cuts in the 1980s, some temporary budget cuts were, in fact, enacted. But as the years passed, the spending resumed. The anti-government crowd's real achievements were chronic deficits and debt, economic stagnation, candidate Ross Perot, and president Bill Clinton. The size of government was reduced; however, the permanent shrinkage was achieved under Clinton.
Now, their tactics are even less likely to succeed. By making it more difficult to achieve even a modicum of austerity in spending programs and entitlements, they will have achieved the opposite of their stated goal: bigger, less fiscally responsible government.
Here's an ugly, but not unlikely scenario. Large tax cuts skewed toward currently favored groups (wealthy families in this case) lead to a collapse of shared fiscal discipline, and a return of deficits and protracted economic sluggishness. A new national scold like Mr. Perot finally emerges and forces a return to fiscal discipline and the forward-looking economic policies that served the nation so well in the mid-and late-1990s. In the meantime, we've wasted years and burned off our surpluses (or worse, added to our debts).
Maybe the economy (or some courageous Senators) will bail us out before that scenario unfolds. President Bush should hope that the economy quickly returns to pre-2001 growth rates or that the Senate succeeds in trimming his tax cut and adding some balance to its benefits. Otherwise, his own tax plan could end up tagging him "President Deficit" in the history books.
