Commentary

Don’t Cut the Tax Cut to Pay for Kosovo

By Stephen Moore
May 6, 1999

Last month Congress was awfully eager to approve U.S. involvement in the war in Kosovo, but now it’s highly secretive about exactly how we’re going to pay for that war. Democrats seem to agree they will oppose cuts in social programs to finance the air raids. Republican military hawks, like Sen. John Warner of Virginia, say they would protest even a dime of cuts in other military programs. So where will the money for this $40 million a day military adventure come from?

The likely answer: from yet another “emergency” supplemental spending bill. Simply inflate the already obese budget to accommodate another unforeseen crisis. Of course, unforeseen crises-floods, droughts, famines, currency devaluations, the Y2K problem and the like-are becoming as predictable as a Greg Norman swoon on a Sunday afternoon at the Masters. Emergency funding has made a mockery of the budget process in Washington and it should stop-starting now.

But will it? Many members of Congress seem content to pay for Kosovo by trimming back the already tiny tax cut that Congress approved in the budget resolution last month. In that resolution, Congress promised a $150 billion tax cut over the next five years-not much out of an expected $10 trillion in tax collections. But Kosovo imperils even that minimal tax relief, because the cuts were supposed to be “paid for” out of anticipated “non-Social Security” surpluses. Every extra dollar for cruise missiles, F-14s, NATO’s munificent salaries and expenses and, God forbid, U.S. ground troops is one dollar less for cutting tax rates, ending the death tax or expanding IRAs. There is only one way out of this box: Congress must cut other government spending to make room for tax cuts.

The money at stake here is anything but trivial. The cost of Kosovo is rising daily and is now estimated at $2 billion. Since there doesn’t seem to be a quick peace settlement in sight, as the Clinton administration had hoped, and given that the prospect of deploying ground forces is becoming more real every day, that $2 billion price tag could multiply quickly.

Adding to the problem, both Republican and Democrat appropriators are already clamoring to bust the 1997 spending ceilings on the domestic side of the budget.

To pay for Kosovo and other extra spending lawmakers have in mind, Congress should trim the $1.75 trillion we spend on everything else, not the tax cut. Here’s one idea that would have broad public support: cut corporate welfare. The Cato Institute has identified more than $70 billion a year spent by Congress on business subsidy handouts. The Commerce Department, which has become nothing more than a Clinton administration slush fund for its private industry supporters, could be cut to pay for the entire Kosovo escapade. Eliminating the Energy Department would pay for Kosovo three times over.

Alternatively, we could take the money out of such programs as the Export Import Bank. Congress will simply have to tell the lobbyists from General Electric and Boeing, “We’re sorry but your welfare check is going to have to be a little smaller this year in order to pay for the Kosovo war effort.” Surely, those Fortune 500 companies would be eager to do their part.

James Madison once declared that “crisis is the rallying cry of the tyrant.” How right he was. Every modern crisis has meant bigger government. Over the past decade, federal “emergencies” have averaged some $3 billion a year. Last year Congress crammed a whopping $21 billion into an emergency funding bill, with hardly a peep of protest. It’s hard to believe we’re in a period of prosperity and (until last month) peace.

Republican John Shimkus of Illinois in the House and Democrat Bob Graham of Florida in the Senate want to end the emergency spending gambit by requiring a supermajority vote to approve such budget busters. “Just as private citizens are warned against falsely dialing 911,” declares Senator Graham, “Congress should be restrained from misusing its emergency spending powers.” He’s right. In addition, all emergency spending should be paid for through across-the-board or specific spending cuts.

In just the past five years, while the emergency sirens have been sounding all over Washington, the combined income and payroll tax rate has quietly risen from 22 percent of wages to just under 27 percent. When will Congress declare that an emergency?

The entire Kosovo venture has been a costly and foolhardy mistake. Shrinking the tax cut to pay for the war would only compound that mistake.

Stephen Moore is director of fiscal policy studies at the Cato Institute.