May 12, 2003
Unsound compromise . . . a losing strategy
Donald Lambro
Each Democratic presidential candidate wants to repeal or freeze President Bush's tax cuts, which means they will be calling for major tax increases in the 2004 elections.
The result could be an eerie replay of the 1984 election when President Reagan buried Democratic nominee Walter Mondale in a 49-state landslide after the former vice president called for tax increases on middle- and upper-income Americans. Mr. Mondale's call for tax increases was blamed for his stunning loss.
Though the Democratic contenders' positions vary on the 10-year, across-the-board tax cuts enacted in 2001, each wants to eliminate either most or all of the cuts.
Rep. Dick Gephardt of Missouri, among others, is pushing to repeal all of the cuts and plow the money into a universal health care plan. Connecticut's Sen. Joe Lieberman and some of his rivals want to freeze the cuts, effectively stopping the remaining tax reductions that are scheduled to take effect in 2004 and 2006.
All the candidates insist that they are not really raising taxes, because the bulk of the tax cuts — largely directed at people in the top two income brackets — won't take effect until later in the decade. Some economists don't buy it, but that's what the candidates are arguing.
Regardless, their argument will evaporate if Congress passes some version of Mr. Bush's economic stimulus plan this year, which now seems likely to happen.
Mr. Bush's proposal, designed to spur growth and create jobs, calls for accelerating all of the remaining scheduled tax cuts. This means that all of the lower income tax rate cuts slated for 2004 and 2006 will take effect this year — bringing all of the rates down. For example, the current 38.6 percent rate would drop to 35 percent and the current 27 percent rate would fall to 25 percent.
While the Republicans' internal Senate fight over Mr. Bush's plan is focused on how much of the dividends tax cut will be included in the final bill, there is currently no argument among Republican lawmakers over the income tax rate cuts. Both the House ($550 billion) and Senate ($430 billion) versions would implement all of the president's income tax rate cuts immediately.
If these rate cuts are passed, as I believe they will be, then any proposal by the Democratic presidential nominee to roll back the rates to the levels under President Clinton would effectively raise taxes on most Americans, several economists said last week.
"Income tax withholding will be less in 2004 and people will see their take-home pay increase, and that will probably make them happy," said economist Kevin Hassett of the American Enterprise Institute, conservative think tank. "Democrats will have to convince voters that it's a good idea for their take-home pay to decline. That would be a tough sell."
Democrats will argue that they would be raising rates on the rich, but that argument won't wash in light of Mr. Bush's huge $1.8 trillion tax-cut program, says a senior administration economist.
"It would be an effective tax increase on everybody, because ultimately you would have to raise taxes on the middle class," this economist told me.
"Upper-income people pay most of the taxes as a percentage of their income, but in terms of most tax-revenue receipts, that money comes from middle- and upper-middle-class" families making somewhere between $45,000 and $100,000, he said.
In his 1984 campaign, Mr. Mondale tried to portray his tax increases as solely aimed at the wealthy. In fact, his increases would have affected people in the median-income range.
The Democratic presidential candidates, like lemmings heading for a cliff's edge, seem prepared to follow in Mr. Mondale's doomed footsteps. Notably, all of the congressional members seeking their party's nomination voted against Mr. Bush's original tax cut plan in 2001, and will most likely vote against this year's accelerated tax-cut stimulus package as well.
"This is not a winning strategy," said Grover Norquist, president of Americans for Tax Reform. "The Democrats are walking into a trap of their own making."
And the way things are shaping up on the tax-cut front on Capitol Hill, Mr. Bush may give the Democrats every chance to do just that.
The House was to act on its tax-cut package Friday that would give Mr. Bush about 85 percent of what he wanted. Senate Finance Committee Chairman Chuck Grassley of Iowa is crafting a somewhat smaller plan, with about $80 billion in spending and tax offsets, tailored to appeal to two Republican holdouts, Sens. Olympia Snowe of Maine and George Voinovich of Ohio.
In the end, Democrats will run on repealing Mr. Bush's tax cuts entirely, or at least significantly scaling it back, which will inevitably turn them into Walter Mondale look-alikes.
As former House Speaker Newt Gingrich told me last week, this is "going to offer the voters a very clear choice."
Donald Lambro, chief political correspondent of The Washington Times, is a nationally syndicated columnist.
URL:http://www.washingtontimes.com/commentary/20030512-15788225.htm |
