Washington Outlook
Edited by Richard S. Dunham
Bush vs. Daschle: Who's Blowing Smoke on the Tax Cut?
Cluster bombs are falling, and the heavy artillery is taking aim at weak points in enemy defenses. No, not in Afghanistan--in the escalating political fight over taxes and economic policy. In a nasty runup to the November election, President George W. Bush and Senate Majority Leader Tom Daschle (D-S.D.)--still allies in the War on Terror--started 2002 by trading rhetorical salvos over blame for the recession and renascent deficits. Unfortunately, both deserve more credit for energy than accuracy.
Daschle started the squabble on Jan. 4 by blaming the Bush tax cut for slashing budget surpluses--and worse. "Not only did the tax cut fail to prevent a recession," he argued, "it probably made the recession worse."
The next day, Bush counterattacked. "Not over my dead body will they raise your taxes," he told a crowd in Ontario, Calif. In his weekly radio address, he implied that Democrats have cost 943,000 people their jobs by failing to pass a stimulus plan.
The argument that a back-loaded tax cut decimated the 2001 surplus is absurd--especially coming from Daschle, who backed big tax rebates last year. His long view is arguably more credible, however. Short-term rates, controlled by the Fed, have plunged from 6.4% to 1.8% since December, 2000. But rates on 10-year Treasuries have barely fallen from 5.24% a year ago to 5.05% on Jan. 9. Daschle, backed by former Treasury Secretary Robert E. Rubin, says that over the next 10 years, Uncle Sam will have to borrow more than $1 trillion to pay for last spring's tax cut. The bond market, worried that Washington has lost fiscal discipline, has pushed long-term rates higher than they might otherwise be, Daschle says. That, in effect, taxes everybody who borrows.
But there are other reasons why long rates are high. Rates may not have dropped because foreign investors are buying fewer U.S. bonds or because of bullishness about the recovery. And rates are still quite low by the standards of the past 25 years, says financial economist Donald Straszheim. Just ask the millions of Americans who refinanced their homes.
Daschle is certainly on stronger ground when he says the tax cut has eaten away the surplus. The projected 10-year surplus of $5.6 trillion is expected to shrink by $3.7 trillion over the next decade. Of that, nearly half ($1.7 trillion) will be caused by Bush's tax cut, according to congressional estimates.
Meanwhile, Bush's suggestion that Daschle is itching to roll back the tax cut is simply not true. Also, it's a stretch to blame Daschle for every layoff in Dubuque. To believe Bush's claim that Senate inaction cost 943,000 jobs is to believe that modest stimulus would have prevented pink slips. Bush's Council of Economic Advisers said in December that failure to enact a stimulus package would cost 300,000 jobs--and many economists consider that number too high.
The debate puts Daschle in an awkward position. A dozen Senate Dems, including three in tough reelection battles, voted for the tax cut and now chafe at Daschle's criticisms. Besides, the public prefers Bush's economic agenda by 50% to 36% over that of Hill Democrats, says Democratic pollster Mark Penn. Overwhelmed by Bush's post-September 11 popularity, Democrats are scrambling for traction. If the recession lingers, it will bolster their arguments. But if conventional wisdom holds and the economy rebounds, this early skirmish shows how tough it will be for Dems to bad-mouth Bushonomics.
By Howard Gleckman
CAPITAL WRAPUP
A Jab at Jeb
Florida Governor Jeb Bush is about to get caught in the crossfire over taxes. The reason: By using big brother George's definition of tax increases, Jeb has advocated at least two tax hikes. Or so Democratic partisans would have you believe.
Here's the logic: President Bush argued on Jan. 4 that congressional Democrats would be endorsing higher taxes if they tried to postpone any of the 10-year, $1.35 trillion cut enacted last year. By delaying the promised tax relief, Democrats are actually increasing the tax burden on working Americans, the White House argues.
Democrats dismiss the President's charges as political sophistry but eagerly note that if they are tax-raisers, so is George's little bro. That's because Jeb wants to slow down the phase-in of the estate-tax repeal mandated last year by the tax cut signed into law by the President. He also proposed a two-year delay in tax cuts on stocks and bonds. Jeb's argument for postponing the tax repeals--eerily similar to Democratic arguments in Washington--is that the state can't afford to lose more than $300 million in revenues in the midst of a recession.
And Dems, who have made Jeb's reelection defeat a top priority for 2002, are preparing to quote George as they go on the attack. "Does the President think his brother is raising taxes in Florida?" asks Democratic pollster Mark Mellman. Not likely, but the Bush family may be learning that political hyperbole can come back to bite you.
By Richard S. Dunham
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Copyright 2002 , by The McGraw-Hill Companies Inc. All rights reserved.
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