Repeal Bush's Tax Cut:: Use the money for social insurance and economic stimulus.
By: Barney Frank
From The American Prospect
One of the impressive feats of intellectual tenacity in recent times is the Republicans' ability
to sustain their faith in large tax cuts for the wealthy despite repeated battering from reality.
When George W. Bush first proposed this early in 2000, his justification was that our economy was so strong that it was producing far more revenue than we needed. A year later, as Congress was considering his proposal, the president's rationale did a 180-degree turn: Now it was the very weakness of the economy that demanded a tax cut, so that the wealthy would be encouraged to engage in more of the economic activity that was to be our means of avoiding recession. During all of that time, Bush was as fervent as anyone else in subscribing to the view that revenues derived from the payroll tax should go only to Social Security and not be used for other purposes--until it became clear that he could not have both his tax cut and this commitment, whereupon the commitment began to crumble.
The constant throughout these flip-flops, however, was the president's ardent conviction that we had too much government. In fact, the real reason he sought a significant reduction in government revenues was his belief that this was the most effective way to reduce the level of government activity.
But then things changed, tragically and drastically. First, of course, it became clear that the tax cut was doing very little to stave off economic weakness--not surprising, since the great bulk of the reduction is not due to take effect until years in the future, far beyond the date when the current cyclical downturn should be history. And second, cataclysmically, America suffered the massive, murderous tragedy of September 11.
One consequence of that horrific day is a national consensus that what we need is more government spending--to move immediately against terrorists; to engage in significant reconstruction, compensation, and increased security; and also to deal with a very real recession. Fairly quickly, the pressing need to spend at least $100 billion more than was authorized in the current budget gained near universal acceptance. And while not everyone has been explicit about acknowledging it, the requirement for increased government spending will not go away after we deal with the current emergency: It will stay with us for the indefinite future. Beefing up our intelligence capability; significantly increasing the security of air travel; indefinitely protecting vital infrastructure; developing a public-health capacity to deal with the possibility of chemical or biological attacks; providing a federal role as payer of last resort for reinsurance companies in case of similar catastrophes; significantly upgrading the computer capacity at all levels of government; and, according to the Bush administration, greatly increasing military
spending--all of these are requirements for increased government spending, not simply over the next six months but on into the future.
In short, the notion that government needs significant shrinkage (which was the only consistent rationale for the Bush tax cut) no longer commands the support it once did--even from the Bush administration. And I doubt that even the most passionate government hater on The Wall Street Journal editorial board says to himself on boarding an airplane that he feels much safer knowing that he has a tax cut in his pocket.
But because Congress acquiesced to the president's tax-cut request, the federal revenues we will need in order to deal with the current double crisis as well as fund significantly higher levels of protective activity in the future will not be there.
Unless we act. Federal revenues will be more than $100 billion lower than they would have been over the next 10 years because the president persuaded Congress to reduce the tax rate on incomes over $297,350 a year from 39.6 percent to 35 percent. That's the bad news. The good news is that only a very small piece of this reduction has gone into effect; if Congress acts now, we can produce more than $100 billion in additional revenue with no contractionary short-term economic consequences.
Under current law, the $100 billion or so in additional funding that we will spend to deal with our crises will add to the national debt unless, as conservatives have already begun to urge, we make up for this by cutting federal spending for education, housing, health care, and other critical social needs. Obviously, it makes sense to spend freely now, both to combat the deepening recession and to deal with the terrible events of September 11.
But it does not make sense to couple this short-term spending increase with a long-term reduction in federal revenue from the very wealthiest people in our society.
On September 21, I filed a bill with a number of Democratic co-sponsors to undo the cut in the top tax rate and to put the resultant revenues into the Social Security and Medicare trust funds (in the same percentage as the current payroll tax is divided). This will allow us to proceed with the increased spending that we need in the short term without immediately cutting vital social programs or leaving the conservatives with a larger national debt with which to argue for such spending cuts in the future. Putting this money into the Social Security and Medicare trust funds has two justifications: First, unlike the "lockbox" concept--and the longer I hear that debate carried on, the more I am convinced that if we were to make any change in the First Amendment, it should be to ban the use of metaphors in the discussion of public policy--this produces additional actual resources to help keep the Social Security system solvent and to provide at least a small part of the additional funds that Medicare needs to rescue it from its current fiscal ill health. Second, it enables my elected colleagues--both the president and
Congress--to keep the promise so many of them ardently made not to spend payroll-tax revenues for general government purposes.
Of course, they now say, this promise must give way if there is no alternative for protecting national security. But there is an alternative: telling the richest people in this country that while they will still get the same tax cuts in dollar terms on income below $300,000 that their poorer fellow citizens get, they will not get an additional $100 billion-plus over the next 10 years.
If we hadn't already reduced the resources that the government needs by more than $100 billion over the next decade as a gift to the very wealthy, I doubt that we would do so in the current circumstances. Sometimes mistakes are hard to undo. This time, correction can come easily, since tax cuts far in the future that have not gone into effect can be undone without any destabilizing effect.
Letting a mistake stand that can easily be corrected is dumber than making it in the first place.
Barney Frank
Copyright © 2001 by The American Prospect, Inc. Preferred Citation: Barney Frank, "Repeal Bush's Tax Cut:," The
American Prospect vol. 12 no. 19, November 5, 2001. |
