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From
the June 16, 2003, issue of National Review
A
Victory
The
latest Bush tax cut.
By NR
Editors
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ongress has
just enacted the most pro-growth tax cut since 1981. The 1986 tax reform
reduced tax rates but also included tax increases on capital. The 1997
tax cut focused narrowly on capital gains. The 2001 tax cut reduced tax
rates, but did so over a painfully extended period. President Bush's latest
tax cut, on the other hand, cut tax rates, taxes on dividends, and taxes
on capital gains — immediately. Not only did Bush get most of what
he wanted from Congress; the capital-gains provision was an improvement
on his original proposal.
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The victory is all
the more impressive given the missteps Republicans made on the way to
achieving it. The administration did not prepare the ground for cutting
taxes on dividends. While Bush, Dick Cheney, Treasury secretary John Snow,
and commerce secretary Don Evans were tireless in arguing for tax cuts,
they never made a particularly persuasive economic case for them. The
plan made sense as a supply-side measure to increase incentives to work,
save, invest, and allocate capital efficiently. But the administration
thought it politically safer to talk about the money it would put in people's
pockets — opening the door to Democratic proposals that would put
money in people's pockets by spending money rather than cutting tax rates.
Bush's tactics are also open to question. By insisting that Congress cut
taxes by $726 billion for weeks after it was clear that figure was unattainable,
he may have missed the chance to cut a deal for $550 billion in tax cuts.
In the end, he got $350 billion. Sen. Bill Frist got a lot of heat for
a fumble in negotiations with the House, and Rep. Bill Thomas, head of
the House Ways and Means Committee, was criticized for obstinacy on the
details of the tax package. But the result of all the wrangling was a
solid package that conservatives could wholeheartedly support.
Liberals have been
furious in their criticism of the tax cut. They have represented it as
huge. But $350 billion represents less than 1.5 percent of projected federal
revenues over the next ten years. They have claimed that it is deceptive
to have the tax cuts expire in a few years, since conservatives will press
for the expiration date to be pushed back or eliminated. But the cut-off
was necessary to squeeze the tax cut into the artificial limits that liberals
insisted on.
The most justified
liberal jape at the administration is that tax cuts are its entire economic
policy. We would prefer that the tax cuts were supplemented by other salutary
policies, such as trade liberalization, spending cuts, and deregulation,
particularly of the telecom industry. But those measures have either already
been precluded by administration policy or are politically unattainable.
The bright side for Bush is that he has time for an economic recovery.
Ronald Reagan's recovery started later than this in his first term. And
changes in the American economy since then — the increased importance
of the stock market, above all — mean that recoveries can affect
voters faster than they used to. If the markets rebound, lingering unemployment
will not be so dangerous to Bush's reelection.
The press has made
a habit of speculating about whether President Bush will avoid or repeat
the political mistakes of his father. He has now definitively avoided
the principal mistakes: appearing indifferent to the economy and ceding
the initiative to the Democrats. This was a substantial policy victory,
and a political one as well.
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