Opinion Editorial | |
| Monday, July 26, 1999 | |
Tax Cuts Are Often Reversed |
Last week, Republican moderates nearly derailed a major tax cut, concerned that it was too big and would reduce the budget surplus too much. Although their concern for maintaining fiscal discipline is admirable, their objection to the tax bill is misplaced. Enacting new entitlements, such as Bill Clinton's proposed prescription drug benefit, is a far greater threat to budgetary restraint than a tax cut.
One problem is that many moderates really see no difference between a tax cut and a new entitlement program. In their minds, both are just about impossible to reverse once implemented. That is why many worry about the $3 trillion reduction in revenue that the House tax bill is said to cost in the second 10 years after passage, even though the estimate is utterly meaningless.
But history shows that while entitlements are indeed very, very difficult to reduce once in place, Congress has proven more than willing to undo tax cuts.
This suggests that even if the House tax bill is too big in some sense, it can simply be undone later; for example, in 1982 Congress moved swiftly to take back more than one-third of the 1981 tax cut in the Tax Equity and Fiscal Responsibility Act.
Another point skittish moderates should remember is that failure to cut taxes from time to time means that taxes will automatically rise. As long as we have progressive tax rates and a tax system that is not fully indexed, inflation and real growth will push people into higher tax brackets and increase their tax burden. Indeed, this effect is so strong that the 1997 tax cut didn't even keep taxes from rising. Estimates of federal revenues by the Congressional Budget Office were significantly higher after the tax cut was enacted in August of 1997 than they were before (see figure).
It is welcome to see so many Members of Congress today genuinely concerned for our nation's financial future. But their insistence on maintaining a large and growing budget surplus makes them look more like Midas hoarding his gold than fiscally responsible legislators. After all, if we can't cut taxes when we have a large budget surplus, when can they ever be cut? Those concerned about fiscal responsibility would do better to worry more about Mr. Clinton's new entitlement programs and less about tax cuts.
Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, July 26, 1999.
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