Politics & Policy

A Taxing Wait

Republicans, bring on more cuts already!

Today, the day after Easter, fittingly enough, millions of Americans will render unto Caesar the things that are Caesar’s. As the IRS’s midnight filing deadline looms, congressional Republicans should lead the charge for tax relief, especially this election year. Instead, the GOP’s tax-fighting banner languishes as congressional leaders dawdle, and cowardly moderates greet tax reduction like castor oil. This is foolish and pathetic, particularly since tax cuts are doing just what they should: propelling 17 consecutive quarters of economic expansion, cutting unemployment to 4.7 percent, and filling–not draining–the Treasury.

Modest legislation to extend President Bush’s tax cuts for two years, rather than make them permanent, is trapped in a House-Senate conference committee. Such inaction might be understandable if tax cuts actually “ballooned the deficit,” as tax hikers always charge. In fact, the opposite is true: Federal revenues surged 15 percent last year.

The Laffer Curve, economist Arthur Laffer’s oft-dismissed theory that marginal tax-rate reduction lifts revenues by accelerating economic activity, has been vindicated, yet again. While liberal critics giggle to themselves, Laffer gets the last laugh as the economy follows his model.

Bush’s $1.72 trillion in total tax relief reduced personal income-tax rates, respectively, from 39.6, 36, 31, and 28 percent to 35, 33, 28, and 25 percent. Among fiscal-year revenues, 2002’s $858.3 billion in income-tax receipts fell to $783.7 billion in 2003. After reductions fully took effect, however, revenues rose to $808.9 billion in 2004, $927.2 billion in 2005, and an estimated $997.6 billion in 2006, and $1 trillion in 2007.

According to the Congressional Budget Office, the capital-gains tax generated $58 billion in 2002. After it fell from 20 percent to 15 in May 2003, receipts dropped to $50 billion. But then they rose to a preliminary $60 billion in 2004 and a projected $75 billion in 2005.

This parallels Democrat Bill Clinton’s capital-gains-rate cut from 28 percent to 20 in May 1997. Receipts grew from $54 billion in 1996 to $72 billion in 1997 and $84 billion in 1998.

This shiny coin’s stained side is the FY 2007 deficit. It is tarnished not by tax cuts, but by GOP fiscal incontinence.

“Had the President and Congress limited federal spending increases to 4 percent each year since FY 2001, the budget would be out of the red next year and would yield a surplus of $58 billion instead of a $354 billion deficit,” says National Taxpayers Union president John Berthoud. “Considering that in 2010, the Administration still expects a shortfall of $183 billion, a little self-restraint would have gone a long way.”

NTU’s Pete Sepp calculates that “the GOP Congress added $525 billion of inflation-adjusted federal spending between FY 2000 and FY 2007, an increase, after inflation, of 29 percent.” Simply put, limiting spending to inflation would have saved taxpayers more than half a trillion dollars since 2000.

True, Hurricane Katrina, homeland security, and the War on Terror have kept Uncle Sam’s checkbook wide open. But Cato Institute analyst Chris Edwards finds that the president and Congress have spent lavishly everywhere.

“Exclude Defense and Homeland Security, and spending still rose 37 percent between FY 2001 and 2006,” says Edwards, citing non-inflation-adjusted figures. Agriculture Department expenditures increased 41 percent. The Health and Human Services budget advanced 50 percent. Education Department outlays soared 135 percent. From priorities to pork, federal spending grew 45 percent in five years.

Upon returning from spring break, the GOP Congress should vote to make Bush’s capital gains, income, and other tax cuts permanent. It also should give the death tax a state funeral.

“Death and taxes are inevitable, but death taxes are not,” said Free Enterprise Fund chairman Mallory Factor. “It is time for the Senate to make the repeal permanent and complete.”

The FEF last Wednesday launched a TV ad showing vultures dining on carrion. “The death tax can rip away 55 percent of what you save for your loved ones,” the ad states. “But the vultures want to keep on feeding on your savings. That’s wrong.” The ravenous scavengers sport the superimposed heads of Democratic Senators Hillary Clinton of New York, Edward Moore Kennedy of Massachusetts, and Harry Reid of Nevada.

While they are at it, legislators should kill three taxes that have outlived their usefulness. The 3 percent federal telephone excise tax was a temporary funding tool for the Spanish-American War. The U.S. defeated Spain on December 10, 1898, yet this “temporary” tax creeps into its third century. Enough.

The federal Universal Service Fund, AKA the “Gore Tax,” currently increases long-distance phone charges by 10.9 percent, supposedly to narrow the so-called “digital divide.” With cheap PCs and Internet access essentially ubiquitous, this tax should vanish like the Albert Gore vice-presidency that hatched it.

Congress also should terminate the luxury tax on beer. That’s right, beer. In 1990, as part of his notorious “Read my lips” tax hike, President G.H.W. Bush doubled the federal excise tax on beer from $9- to $18-per- barrel. While the luxury taxes on furs, yachts, and private airplanes were repealed, the Tax Code still treats beer like champagne. According to the Beer Institute, 44 percent of beer’s retail price consists of taxes. As Steve Stanek wrote in the September 2005 Budget & Tax News, “The beer industry estimates the excise tax increase has resulted in the loss of nearly 60,000 jobs in brewing, distributing, retailing, and related industries.” Congress should chug a few, then halve this levy back to $9. Better yet, stop taxing beer.

With such votes behind them, Republican lawmakers confidently can face their own base. If not, GOP voters will snooze November 7 and let spineless, spendthrift Republican congressmen confront enraged Democrats–like Christians tossed to the lions.

Deroy Murdock is a New York-based columnist with the Scripps Howard News Service.

Deroy Murdock is a Manhattan-based Fox News contributor and a contributing editor of National Review Online, and a senior fellow with the London Center for Policy Research.

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