President Bush's campaign pledge to enact a $1.6 trillion tax cut if elected now has been sent to Congress. It was a masterstroke in keeping the Democratic opposition off balance.
Whether it was intended or not, the proposal has divided Democrats, who cannot decide what program they should fashion to respond to the Bush initiative. No one knows what tax-cut plan will emerge, because even some Republicans are not firmly wedded to the president's initiative.
The only certainty is that some tax-cut formula will emerge from Congress, but only after extended debate and a series of compromises, with both Republicans and Democrats proclaiming a win in the ultimate outcome.
Federal Reserve Chairman Alan Greenspan knocked the props out from under the Democrats, who early on were not keen on any tax-reduction proposal. His statement that a tax cut would not harm the economy because of the growing federal budget surplus took away a key Democrat argument against the Bush plan. On the other hand, his statement that tax cuts don't stimulate a lagging economy was a blow to the Bush plan supporters.
The Democratic leadership doesn't want the party to be stuck with an anti-tax-cut label. Given that, House Democratic leader Dick Gephardt, long opposed to tax cutting, now says he would not oppose cuts up to $1 trillion over 10 years, and Senate Minority Leader Tom Daschle says he'd be willing to look at a Bush proposal to make a tax-cut plan retroactive to Jan. 1.
Meanwhile, other Democratic legislators are coming out with their own ideas on tax reform, with most inclined to provide targeted tax cuts that would be more advantageous to low- and middle-income taxpayers. Some say they favor changing the current lowest tax rate of 15 percent or providing a tax credit to offset Social Security taxes. Others favor making any tax cuts contingent on the size of the federal surplus through the years.
The overall thrust of the Democrats is reluctance to overturn the fiscal policies of the Clinton administration that produced federal surpluses instead of big deficits. House and Senate Republicans continue to be supportive of the president's massive tax-cut proposal, but the more conservative wing of the party is letting it be known that it feels the $1.6 trillion cut is not big enough.
The GOP's right wing would include major cuts in capital gains taxes and credits for installing high-tech equipment as well as elimination of inheritance taxes and other changes that could raise the tax-reduction package to at least $2.5 trillion.
As the debate gets under way, Congress should be mindful of past experience. The positive results of the deficit-reduction program of 1993, with its emphasis on fiscal discipline, resulted in lower interest rates, restoration of consumer and business confidence, increased consumer demand, increased investment and productivity and sustained economic growth. Opponents' predictions to the contrary, it was a highly successful endeavor.
The Bush tax-cut program would substantially diminish the fiscal stability of the government and create a serious threat of a federal budget deficit. The Congressional Budget Office projection of a $5.6 trillion surplus 10 years down the line is just a projection, and past projections don't provide confidence that the numbers will be there in the future. This CBO projection is in reality only $2.1 trillion after deducting Social Security and Medicare surpluses.
Former Treasury Secretary Robert E. Rubin warns that the president's tax-reduction program would "leave nothing for special programs that already have broad support, like a prescription drug benefit -- or other purposes." He strongly suggests that "a moderate degree of prudence would suggest waiting a few years (on a major tax reduction such as Bush proposes) to see whether or not the projected surpluses are actually occurring, meanwhile paying down the debt."
Rubin, who was rarely a target of Republicans in the five years he served in Clinton's cabinet, feels the most prudent use of the current treasury surplus would be "to divide this between debt reduction, a more moderate tax cut predominantly favoring middle-income and lower-income people and special incentives in important areas like education and health care."
Rubin's ideas make much more sense than taking a foolhardy path of massive tax reduction that could result in fiscal instability and undo the positive effects of recent years. The old maxim that it's better to be safe than sorry is certainly applicable here.
MURRAY B. LIGHT is the former editor of The Buffalo News.