Opinion Editorial | |
| Monday, July 19, 1999 | |
Liberals React To The Archer Tax Cut Plan |
Opponents of tax cuts went into overdrive last week after House Ways and Means Committee Chairman Bill Archer (R-Texas), began to move an $864 billion tax reduction through his committee. The truth, however, is that the Archer plan barely dents the growing tax burden and hardly measures as a share of the gross domestic product. Indeed, it doesn't even reduce the budget surplus significantly.
Within hours, the union-backed Citizens for Tax Justice had calculated that the top one percent of taxpayers would get 46.1 percent of the tax relief and the lowest 60 percent would get a mere 7.2 percent. This results from ignoring most of the provisions of the Archer bill except those that benefit the rich, ignoring the impact on jobs and economic growth, and greatly exaggerating the effect of cutting the capital gains tax.
The liberal Center on Budget and Policy Priorities concentrated its fire mainly on the size of the Archer plan, charging that it would reduce revenues by $2.8 trillion in the second 10 years after passage. This is just silly. It treats tax cuts as if they are written in stone and can never be changed, makes projections far outside the normal budget estimation period, and fails to put the numbers into context. Thus while $2.8 trillion sounds like an enormous amount of money in today's dollars, GDP over the 2010 to 2019 period will amount to $173 trillion, using the Center's methodology. Between 2000 and 2009 the tax cuts amount to just 0.7 percent of GDP (see figure).
Finally, a more sophisticated argument is that tax cuts will be too stimulative, potentially stoking inflation. This view is put forward by Louis Uchitelle in the New York Times. He quoted several recent and former Federal Reserve officials to the effect that tax cuts will require the Fed to raise interest rates, which will cause the stock market to crash.
This argument is based on Keynesian economics, which views budget deficits as economically stimulative. It is one that few if any academic economists take seriously anymore. But even if one takes the Keynesian position at face value, it really argues in favor of an even bigger tax cut. That is because if deficits are stimulative, then surpluses must be depressing. And the fact is that the Archer plan would only reduce the total budget surplus by 2.8 percent the first year, rising to 24.5 percent by the fifth year. Even at its highest point, in the year 2009, there will still be an annual surplus of more than $200 billion.
So far, the attacks on the Archer plan are specious. The best argument is that it is too small.
Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, July 19, 1999.
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