Commentary

Look Who’s Counting

A modified version of this article appeared on Nationalreview.com, February 8, 2006.
The Best: President Bush is a determined tax cutter. His new budget calls for making his prior tax cuts permanent, and it includes some new reforms such as expanding health savings accounts.

Bush gave us income tax cuts in 2001, business investment tax cuts in 2002, dividend and capital gains tax cuts in 2003, and corporate tax cuts in 2004. These tax bills had flaws, but they included many pro-growth reforms.

Remember that Ronald Reagan delivered one big tax cut in 1981, but in later years agreed to increases in corporate taxes, gasoline taxes, and payroll taxes. To his credit, Bush has stood firm and resisted class-warfare advocates and deficit hawks who demand tax increases.

However, the new budget highlights two big problems with the administration’s tax agenda. First, the administration has cast aside fundamental tax reform — even though Bush’s own tax commission started the ball rolling on reform with its solid report in November.

The Worst: Second, Bush’s tax cuts may go up in smoke if spending keeps rising. The 45 percent increase in federal outlays since 2001 has created huge deficits, which will likely still exceed $400 billion when the next president comes into office. For a President Hillary Clinton, a tax hike to “solve” the deficit problem would be a no-brainer. But even a new conservative president will feel pressure to increase taxes, perhaps after agreeing to a “bipartisan budget summit” like the one in 1990.

Advice to Congress: The Bush budget is sprinkled with modest spending trims and talk about making programs work efficiently. But it is missing any overarching small government themes such as giving power back to the states, privatization, or cutting corporate welfare.

It is left to reformers in Congress to challenge Big Government in a more fundamental way. They need to start talking about defunding whole areas that should be left to the states or private sector, such as highways and manned space flight.

With entitlement costs exploding, future budgets can’t be standstill budgets like Bush’s. They will have to contain big cuts. But the earlier we start the cuts, the harder it will be for President Clinton to soak us with tax hikes that dwarf the other President Clinton’s tax hikes of 1993.

Chris Edwards is tax director at the Cato Institute and author of Downsizing the Federal Government.