The irresistible mix of a temporary economic downturn and huge budget surpluses as far as the eye can see could be moving Washington toward a tax-cut feeding frenzy that is reminiscent of the Reagan 1981 story. Already a number of pieces are falling into place.
In recent days, House Majority Leader Dick Armey sent a letter to Republican members calling for accelerated tax-rate-reduction that includes expansions of IRA and 401k super-saver accounts. Sen. Trent Lott called for a capital-gains-tax reduction to be added to George Bush’s package, and the Republican Senate leader joined with Armey in calling for a front-ended plan that would be retroactive to January 1.
Meanwhile, Democrats Richard Gephardt and Robert Torricelli have weighed in with tax-cut plans that are 50% bigger than what Al Gore proposed on the campaign trail. Even Horst Kohler, head of the usually root-canal IMF, has endorsed tax cuts for the U.S.
Pollster John Zogby has just released a survey that shows a majority of likely voters nationwide favors the Bush tax-cut plan by 53% to 34%. According to a USA Today/CNN/ Gallup poll, Bush’s own approval rating has skyrocketed to 65%, and 81% of respondents rated Bush’s Cabinet as either outstanding, above average, or average. Only 13% believed them to be below average or poor. W. is off to a good start.
Clinton’s own budget office now projects that surpluses over the next ten years will be $500 billion higher than their last estimates. In a few weeks, the Congressional Budget Office is likely to raise their budget-surplus projections in the $750 billion to $1 trillion range.
In Austin, Texas, last week, President-elect Bush heard an earful from business leaders that corporate tax cuts should be part of the mix, either in the form of corporate tax-rate reduction or more rapid depreciation write-offs — or both. In Paul O’Neill’s confirmation hearings tomorrow, the Treasury-secretary designate is likely to hint at a Bush decision to accelerate the tax-cut plan for short-term economic stimulus, to include business tax-relief provisions, and to look at the tax-cut strategy from the standpoint of tax reform and simplification. By flattening rates and eliminating unnecessary clutter, the former Alcoa CEO is likely to argue that full-fledged tax reform will also raise the economy’s long-run potential to grow.
As he has told people in private, the new Treasury man can be expected to ask, “Why shouldn’t huge budget surpluses be turned back to the private-sector workforce that earned them in the first place?”
The Bush economic transition team is undoubtedly grappling with higher spending proposals as well as deeper tax cuts. Defense-designate Donald Rumsfeld hinted strongly at the need for military spending add-ons to improve readiness and explore SDI options. It is also likely that domestic-spending plans on education and prescription-drug health-care initiatives will come in above the Bush campaign baseline. But liberal Republicans from the Northeast and yellow-dog Democrats from the South will be assuaged by the new CBO surplus projections. There’s plenty of money to go around.
Look for W. to emphasize a bipartisan tax-cut approach in his inaugural speech Saturday. He’ll say that it’s not about Republican tax cuts or Democratic tax cuts, but tax cuts that are necessary for the entire nation’s prosperity. Completely unlike his soon-to-be-departing predecessor, whose endless victory lap is fast becoming a national embarrassment, Bush believes in credit sharing, not credit hogging. In this and many other ways, the Texan’s basic humility and shrewd political thinking is reminiscent of Ronald Reagan.
Hang on to your seat belts. This could be an exhilarating supply-side ride.