Politics and the Tax Cut
HOUSE Republican leaders had their eyes squarely set on November 1996 when they insisted on -- and won -- a vote in favor of a huge, ill-timed tax cut late Wednesday night.
The vote was aimed not just at an interested conservative minority who follow the Contract With America closely and want to see every provision enacted. It was mostly for the great mass of Americans who can tell you a whole lot more about the Simpson trial than the goings on in Washington.
While the Contract's tax cut may prove to be a political masterstroke, its timing -- and its provision for a $500 per child tax credit for families earning up to $200,000, was questionable. Most economists say a big cut like this -- $189 billion over the next five years and $630 billion over a decade -- could overheat the economy, boost interest rates, and perhaps start a recession. How would that help families?
Polls show that Americans favor reducing the deficit -- now projected to grow by $1 trillion in the next few years -- over tax relief. But under this legislation, billions of dollars sweated out of worthy federal programs will not be applied to the deficit; it will be diverted to pay for the tax cut.
A tax cut ought to be possible -- eventually. But not now. Republicans are right that Americans deserve some ''sugar'' to help swallow the sour effects of slimmed-down federal programs. If a rigid ''fulfill the Contract'' strategy hadn't ridden roughshod, a deficit-reducing budget could have been put in place first, assuring Americans that the deficit was the top priority.
The $500 per child tax credit should have been limited to families with incomes under $95,000, a version favored by nearly half the GOP House membership. Instead, House leaders insisted on a plan that allows wealthy families to take the tax credit too. The lower cap would have made the legislation less expensive and more reasonable.
The bill is not without many worthy provisions, which have been overshadowed by the debate on the $200,000 income limit on the per-child tax credit. The easing of the ''marriage penalty'' on taxes for couples, more useful and flexible IRA accounts, tax credits for families who adopt children, and credits for caring for an elderly family member at home are meritorious provisions.
Indeed, aside from its expense, there is much to recommend in the bill. But if we must have a tax cut now it would be better to pass a scaled-down version, something the Senate seems likely to do.