From the June 16, 2003, issue of National Review
Congress 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.
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.