Commentary

Why Sell Out On Tax Cuts

This article originally appeared in the Investor’s Business Daily.

The watchword among congressional Republicans these days is caution. The GOP seems unwilling to challenge Bill Clinton on anything— even tax cuts.

Remember the “crown jewel” of the original Contract With America? Now House Speaker Newt Gingrich says he wants to put off any tax reductions until Congress passes a balanced budget.

The Democrats appear only too happy to oblige. Rep. Gary Condit, D-Calif., says that his fellow “Blue Dog” Democrats would be ready to pass a separate tax cut “paid for” by … other revenue hikes.

Don’t expect real tax reform, either. Majority Leader Richard Armey, R-Texas, says he expects “very little change in the tax code” this year. That means Congress is likely to use President Clinton’s proposals as the basis for any action.

Yet Clinton’s plan is a package of higher taxes and temporary, targeted tax cuts. So the GOP Congress will end up giving us the sort of social engineering long beloved by the left.

For more than a decade Republicans have been committed to real and broad tax reductions. Why change course now?

Certainly taxpayers deserve relief. Their ordeal doesn’t end on April 15. Each year, the Tax Foundation calculates Tax Freedom Day, when the average taxpayer finally stops laboring for public officials. In ‘96, it was May 7, the latest date ever. Thanks to Bill Clinton, the tax burden has been growing steadily since 1992.

One way to trim taxes would be an across-the-board rate cut. After a decade of tax hikes, a 25% cut like President Reagan’s seems fair, though Bob Dole’s proposed 15% reduction would be a reasonable start.

Even better would be a low net income tax of the sort now being proposed for Washington, D.C., by the GOP leadership. Other good ideas include rate cuts for capital gains and estate levies, raising the personal exemption and simply repealing the Clinton hikes.

Republicans should cut taxes for all Americans as a matter of fairness. While the Democrats have long criticized the ’80s as the decade of greed, Clinton has helped turn the ’90s into the decade of envy. Before they lost Congress, some Democrats called for undoing the Reagan cuts, which, in their view, distributed too many benefits to the rich.

Such claims are demagogic and deceitful. The Reagan tax break provided more in tax cuts to the rich only because the rich paid so much more in taxes. If someone pays 10 times as much, nothing is unfair in giving him or her 10 times as much relief.

Even today, the much maligned “rich” pay a huge share of their incomes in taxes. Middle-income people face a marginal rate of 50% in federal taxes alone—income, Social Security and Medicare. Added to that are state and local income taxes, county business licenses and a host of other levies.

What is fair about confiscating two-thirds or more of every extra dollar someone earns?

Higher taxes certainly don’t help poor people. After the Reagan tax cuts, every income group gained. In the Bush-Clinton era of higher rates, the rich still gained—while working people’s incomes stagnated.

If principle isn’t enough, the GOP should at least keep its eye on political gain. A Survey USA poll taken two weeks after the 1996 election found that two-thirds of Americans wanted a tax cut for everyone, compared to just 28% who favored targeted reductions, a la Bill Clinton.

Deep, broad tax cuts are a winning issue. Bob Dole failed not because he called for lower taxes, but because few Americans, understandably, believed that he’d deliver. Only by enacting such cuts can the GOP re-establish its credibility.

Clinton might even sign such a bill. If not, his opposition would be a bigger political plus for the GOP: Let the president defend a widely unpopular system, favor special interests over average folks and block popular tax cuts.

Voters elected a Republican Congress for a reason, and it wasn’t to maintain Democrats’ high taxes and special interest social engineering. The GOP should give Americans what they want. It would be politically smart— and right.

Doug Bandow is a senior fellow at the Cato Institute and the author of “The Politics of Envy: Statism as Theology.”