Summary: A distinguished group opposes the
President’s tax cuts, labeling them fiscally irresponsible and morally
unjustifiable to pass along to our children and grandchildren in the form of
unsupportable payroll taxes. They
advocate that Congress return to the pay-as-you-go budget
process instead
of the temporary insanity statements that deficits don’t matter, currently in
vogue.
Opinion: Those in Washington who are supporting the
President’s tax cut provisions are doing so for short-term political gain that
has nothing to do with fiscal budget responsibility or long term commitments
to the national economic well-being.
Our economy is not in good health. We risk much more than one political
season and four more years of one party in the White House if we focus on one
magical elixir sold as a cure-all for everything.
As a reinvention of supply side economics,
and the even older Trickle Down theory, these tax cuts should be characterized
as former Pres. Bush did other such nonsense years ago, as Voodoo
Economics. Supporters seem to
believe that once they have achieved political victory by paying back their
campaign donators they can magically reverse any negative impacts. How many economists do you know who
believe in magic? -
KWC
April
9, 2003
OpEd
Contributor: No New Tax Cuts
By
BOB
KERREY, SAM NUNN, PETER G. PETERSON, ROBERT E. RUBIN, WARREN B. RUDMAN and
PAUL A. VOLCKER
With
a war in Iraq and looming postwar costs, growing pressures for a prescription
drug benefit, increased expenses for domestic security and a ballooning budget
deficit, Congress must exercise restraint on both revenues and spending to
prevent fiscal policy from spiraling out of control. The consensus in favor of
long-term budget balance must be re-established. This issue is now directly
before Congress as it debates the federal budget.
The
fiscal outlook is much worse than official projections
indicate.
These projections assume that the tax cuts enacted in 2001 will expire at the
end of 2010. They also assume that discretionary spending, the part of the
budget that pays for national defense, domestic security, education and
transportation, will shrink continuously as a share of the economy. Neither of
these assumptions is realistic.
Moreover,
the official projections do not include the costs of war and reconstruction in
Iraq. And they ignore the inevitable need to reform the alternative minimum
tax, which is not indexed for inflation and will apply to some 40 million
households within 10 years — up from two million
today.
Under
more realistic assumptions, the deficit projections are cause for alarm. A
recent
study by Goldman Sachs
includes this forecast: if the president's proposed new tax cuts are enacted,
a Medicare prescription drug benefit is approved, the A.M.T. is adjusted and
appropriations grow modestly, the deficits over the next 10 years will total
$4.2 trillion — even if the Social Security surplus is included. If it is not
included, the deficit would be $6.7 trillion. Under these circumstances, the
ratio
of publicly held debt to gross domestic product climbs within 10 years to
nearly 50
percent,
from 33 percent just two years ago.
And
all of this happens before the fiscal going gets tough. Looming at the end of
the decade is a demographic transformation that threatens to swamp the budget
and the economy with unfunded benefit promises, like Social Security and
Medicare, of roughly $25 trillion in present value. Our children and grandchildren already face
unthinkable payroll tax burdens that could go as high as 33 percent to pay for
these promised benefits. It is neither fiscally nor morally responsible to give
ourselves tax cuts and leave
future generations with an even higher tax
burden.
And
yet tax cuts are the primary focus of this year's budget debate. To speed
enactment of tax cuts, Congress is planning to use a special fast-track procedure called
"reconciliation" in the budget resolution. While determining the
size of the tax cut to be given fast-track protection in the budget is
sometimes dismissed as a procedural matter, it is not: whatever its size, a
tax cut that receives this protection is almost certain to be enacted in the
later tax legislation. Members of Congress should not therefore approach the
budget decision with the idea that a tax
cut given such status now can be easily scaled back
later.
The
president has proposed a cut of $726 billion, which the House has already
approved. The Senate has reduced the cut to $350
billion.
Given
the rapidly deteriorating long-term fiscal outlook, neither proposal is fiscally responsible.
It is illogical to begin the journey back toward balanced budgets by enacting
a tax cut that will only make the long-term outlook worse. Furthermore, the proposed tax cuts are not useful
for short-term fiscal stimulus, since only a small portion would take effect
this year. Nor would they spur long-term economic growth. In fact,
tax cuts financed by perpetual deficits
will eventually slow the economy.
The
tax cuts now before Congress do not pay for themselves. No plausible array of matching spending cuts or
offsetting revenue increases has been, or will be, proposed to close the gap
resulting from a large new tax cut.
We
believe that there should be no new tax cuts beyond those that are likely to
provide immediate fiscal stimulus, and that avoid growing revenue loss over
time. If, however, Congress decides it must approve a tax cut, it should pass
the Senate's. While a $350 billion tax cut does not fit our definition of
fiscal responsibility, it comes closer than a tax cut of $726 billion.
Moreover, Congress should re-establish the
pay-as-you-go rule in which tax cuts and entitlement expansions must be
offset. The discipline of this rule greatly contributed to the
elimination of budget deficits in the 1990's and is clearly needed
again.
Congress
cannot simply conclude that deficits don't matter. Over the long term,
deficits matter a great deal. They lower future economic growth by reducing
the level of national savings that can be devoted to productive investments.
They raise interest rates higher than they would be otherwise. They raise
interest payments on the national debt. They reduce the fiscal flexibility to
deal with unexpected developments. If we forget these economic consequences,
we risk creating an insupportable tax burden for the next
generation.
Bob
Kerrey, Sam Nunn and Warren B. Rudman are former senators. Peter G. Peterson
and Robert E. Rubin are former cabinet secretaries. Paul A. Volcker is former
chairman of the Federal Reserve. All are members of the
Concord
Coalition,
a group that focuses on federal budget policy.
http://www.nytimes.com/2003/04/09/opinion/09RUBI.html
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2002
