The Brutal Price of Bush's Tax Cut

The great budget surplus is evaporating. The culprit is George W. Bush's tax cut,
compounded by the economic slowdown. Seemingly, this spells bad political news for Bush. He
is having to violate his pledge that the Social Security surplus would never be tapped for general
government outlays.

The vanishing surplus vindicates the criticism that the tax cut was excessive, and also sets back
spending plans for pet administration boondoggles, such as missile defense. All of this gives the
opposition Democrats lots of ammunition for now. But hold the champagne. This whole way of
thinking about budget politics is a long-term trap for Democrats.

Budget politics now equates austerity with virtue. Defending the surplus is good; spending it is bad.
The surplus is also associated with protecting Social Security. Supposedly, by using the current Social
Security surplus accounts to retire public debt, we set the stage for new borrowing 40 years in the
future when Social Security payouts could exceed the system's annual revenues.

But a budget is a means, not an end. Until Reagan, the budget usually ran a modest deficit. Throughout
the postwar boom, government borrowing financed things that Americans valued and that stimulated
economic growth - highways, airports, jobs, a healthier and better educated population. As long as the
economy grew faster than the public debt, deficits were no problem. Prolonged and excessive deficits,
like Reagan's, indeed do damage. But not until the overreaction to Reagan's deficits was budget balance
per se equated with fiscal virtue.

Ever since Reagan, Democrats have viewed deficits as a terrific club to pillory Republicans. This yields
short-term satisfaction, but in the long run it just makes Democrats into a different kind of conservative
party. Not so long ago Republicans were the party of small government, free enterprise, and meager
public services. Democrats were the party of more expansive services and progressive taxation. This
was disparaged by the right as tax-and-spend, but the formula was pretty effective politics. Most of the
money Democrats spent went for things the voters valued.

Polls suggest that this winning politics is still available. Voters want more secure health care, better
schools and early childhood education, more reliable rail and air service, and other things that require
public investment. But, in their quest for fiscal rectitude, the Democrats have all but given up that
franchise. So we now can choose between two conservative parties. One conservative party wants to
cut the taxes of the rich, limit public services, and not worry so much about the public debt. The other
conservative party wants to make debt paydown an almost religious objective.

Did I miss something? Yes - an opposition party. It has been swallowed up in the great quest for fiscal
probity.

Gentle reader, modest deficits are no big deal. And a sensible opposition politics would look something
like this:

First, repeal the tax cut. That's what is eating up most of the surplus. Most of it went to the very rich
anyway. Then, give ordinary people more tax relief - and spend the rest. The only good thing in the tax
cut was a rather puny one-time $300 rebate for the nonrich. Next year, let's have a $2,000 tax rebate for
a family of four. The economy needs that stimulus and working people could use the money.

By repealing the Bush tax cut, we could invest the remainder of surplus in public services that people
want, starting with comprehensive prescription drug coverage, universal prekindergarten and child care,
and gradual expansion of Medicare to the whole population.

Second, stop equating the surplus with saving Social Security. Let's shore up Social Security, not with
endless surpluses, individual accounts or benefit cuts, but by having the system's trustees invest the
Social Security reserves collectively in a diversified portfolio of stocks and bonds. We could bank even
more reserves by increasing Social Security taxes on the richest 2 percent.

Finally, recognize that there's nothing inherently virtuous about a surplus. As long as we keep the
national debt stable relative to the size of the economy, modest deficits finance constructive public
spending. This view is hardly radical. Before Reagan, it was the bipartisan consensus. It's time to
restore deficits to respectability.

Democrats once thrived as champions of the common American, not the bond market. They should fire
those advisers who think budget surpluses are either good politics or an end in themselves. Nobody
elects Democrats to be the party of the green eyeshade.

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