Sensible Tax Cuts

While Republicans in Congress and the Democrat in the White House agree that tax cuts are in order this year, that's about as far as it goes. Their disagreement over the details starts with the amounts involved: Republicans yearn for $800 billion in tax relief over 10 years, while Democrats would settle on $250 billion to $300 billion.

GOP leaders make the supply-side argument that the economy needs the boost their tax cuts would provide, pointing out that today's tax burden on American families is the highest since World War II. Democrats reply that an immediate tax cut could overheat the economy, forcing the Federal Reserve to hike interest rates to fight resulting inflation. They charge the GOP cuts would balloon in later years, eating into domestic programs.

In addition, President Clinton insists the surplus should be used to pay down the debt and bolster Medicare and Social Security for the coming baby-boom retirements. He says he'll veto the GOP bill. Republicans agree that Social Security surpluses should be put in a "lockbox," but they argue that Congress will spend the rest of the surplus rather than paying down the debt.

The question is whether the two sides can find common ground and reach a compromise, or whether they will seek campaign issues for the 2000 election and do nothing. Ironically, "doing nothing" isn't harmful - it means more of the debt is paid off - and some would prefer that outcome.

Budget projections are ephemeral, and it would be a mistake to rely on them too much. Yet with even cautious estimates indicating surpluses for the next decade and more, there is room for prudent tax cuts. Attempting to placate their own moderates, GOP leaders Wednesday modified their proposal so that a 10-percent across-the-board reduction of income tax rates kicks in only if interest on the debt doesn't go up. Still, the GOP leaders' target is too much at once, while the president's is too small and too restricted to those who already pay little in federal income taxes.

House GOP moderates and a bipartisan group of Senate centrists suggested better approaches. Each would reduce taxes by $500 billion over 10 years, saving about half the projected surplus to pay down the debt and fund other needs that may arise. Those needs may well include funding the transition to reformed Social Security and Medicare programs.

If the economy continues to perform as it has, if the entitlement programs are fixed, and if revenues continue to outpace projections, further tax cuts can be enacted in the future.

Such cuts would be even easier to justify, of course, if they were accompanied by corresponding reductions in the size of the federal government.

(c) Copyright 1999. The Christian Science Publishing Society

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