The Tax Tussle - Industry Trend or Event - Editorial

Industry Standard, The, April 16, 2001

AS MILLIONS OF AMERICANS MAIL THEIR 1040 FORMS this week, the Bush administration is on the defensive over its proposal to slash taxes. Democrats and Republicans on Capitol Hill are squabbling over President Bush's 10-year, $1.6 trillion tax cut plan -- and with the Senate divided 50-50, the White House has little room to maneuver. Meanwhile, polls show that Americans remain conflicted about tax cuts. Sure, they want tax relief, but they also want surplus government dollars to go toward debt reduction, education and protection of Social Security.

What Americans really want, of course, is an end to the economic downturn. But that's a tall order for any White House. Bush can try to cajole the Fed to reduce interest rates -- but Alan Greenspan has already cut rates three times this year, only to see the stock market sink further. Or the president can try to consume his way out of incipient recession by pushing massive government spending in technology and other big-ticket items -- but that would be out of ideological character.

Still, Bush fears that doing nothing as the economy burns would be political suicide; he learned this lesson watching his father fail to win reelection. So now he's talking up his tax cuts as if they are the answer to our economic woes. That, as the Bush team knows, is disingenuous -- and it distracts the White House from taking the sort of actions that could be helpful.

The tax plan is plainly no stimulus package. The cuts are backloaded; real relief comes not this year or next but starting in 2006. Under the plan, the average couple would get a scant $360 break next year -- hardly enough to cover a new car or vacation. Inconveniently for the president, his own treasury secretary ridiculed the notion that tax cuts can head off a slump.

You can't blame Bush for thinking it wasn't supposed to be this way. He hatched his tax plan a year ago, during the GOP primaries, when economic skies were sunny and he was trying to keep from being outflanked on the right. So he reached into his party's supply-side bag of tricks. To recast the tax cut now as a way to fight off bad times reeks of desperation.

So what can Bush do? For starters, he can accept that this is now his economy; blaming the downturn on Bill Clinton is unproductive and unpresidential. More important, Bush can be a counterpoint to the volatility in the markets. The president should, especially in times of unpredictability, stand for stability and fiscal responsibility. That means Bush should reduce the size of his tax cut and devote more of the projected surplus to debt reduction. By bringing down the debt, the president can reduce government outlays on interest and help nudge down interest rates.

Bush's fear of reopening his budget for deliberation is politically well-founded. Democrats could succeed in ramming home a quick tax cut aimed at stimulating the economy -- and that could undermine momentum for his larger long-term cut. Moreover, his father's no-new-taxes flap suggests that flexibility on this point may well be ill-advised.

But Clinton stands as proof that a president can get political mileage from eat-your-spinach economic policy. After Clinton's $30 billion stimulus package went up in smoke during his first few months in office, he embraced (reluctantly, to be sure) deficit reduction. If Clinton, supported by a lot of tax-and-spend liberal groups, could make hay of reducing the deficit, certainly Bush can follow suit. By trimming his tax breaks and cutting the debt, the president can do a service to the economy -- and score political points.

BOB COHN, EXECUTIVE EDITOR