Democrats Must Regroup to Fight Tax Cut

Propelled by Alan Greenspan's sudden conversion, George W. Bush's crusade for a
massive general tax cut seems all but unstoppable. The Democrats need to offer
something better, and fast, or we will soon have Reagan II.

Here is the background: The federal budget surplus will total some $5.6 trillion over the next
decade, even allowing for a moderate recession. $2.5 trillion of that surplus belongs to Social
Security, to be paid in retirement checks when baby boomers retire later in this century. That
leaves over $3 trillion, or something like $300 billion a year.

Until now, many Democrats thought they could hold the line against a massive tax cut by
arguing that we should use the money to pay off the national debt. This was never smart
policy, and it has now been exposed as empty politics. When Alan Greenspan outflanks you as
a fiscal moderate, it's clear you got it wrong.

The problem is that the surplus just keeps getting bigger. A combination of spending restraint
and faster economic growth produced a surplus that is permanent, structural, and escalating.

Defining the debate as a huge risky tax cut versus paying off the entire national debt was never
a productive one for Democrats. And an obvious, traditionally Democratic alternative was left
off the table - popular and necessary public spending.

Senator Kent Conrad of North Dakota, a brave man in a sea of the fainthearted, has been
proposing that the 10-year surplus be allocated: one third for debt-paydown, one third for tax
cuts, and one third for spending. That still gives too much to a tax cut, but at least it opens a

If the Democrats are shrewd, they will both contest the details of the Bush tax cut and propose
imaginative and popular uses of public investment. During the 1980s, public spending (except
for the military) was off the agenda in the Reagan White House. Instead, the Republicans cut
taxes and ran big deficits.

After 1992, the Democrats got back in, but new spending was again off-limits because first we
had to shrink the accumulated deficits. Now, finally, government has plenty of money. But, we
still can't spend it for public purposes because the new chief executive wants a new massive tax

For more than 20 years, social needs have been starved. Once, government kept housing
affordable by subsidizing new supply, but that has vanished. People who can't afford rents and
can't quite manage homeownership shouldn't blame the real-estate market. Free markets have
never provided an adequate supply of affordable housing. They should blame wrongheaded
public policies.

Old folks who are denied prescription-drug coverage and kicked out of hospitals when the
anesthesia has barely worn off should not blame their doctors. They should fault their senators
and congressmen for taking too big a bite out of Medicare and for failing to modernize the
program to include drug coverage.

And harried working parents, if they ever manage a European vacation, might observe that
every major European country provides comprehensive, high-quality child care subsidized by
government. We could afford that, too, if national policies changed. All of these social needs
should take priority over a needless tax cut, of which 43 percent would go to the richest 1
percent of Americans.

If Democrats feel that some tax relief must be part of the budget package, they could at least
offer a very different form.

The liberal Economic Policy Institute has proposed a one-time tax rebate of around $500 for
every man, woman, and child. This would give the softening economy a constructive jolt but
without locking in permanently reduced tax rates. It would also put money in pockets that need
it, rather than giving millions to millionaires.

If some tax cut is a must, how about a more generous tax credit for child care or for first-time
homeownership? How about a personal exemption to reduce payroll taxes, which are now more
onerous than income taxes for average workers?

Vice President Gore proposed a system of lifetime personal savings accounts, which could be
used to pay tuition, buy a first home, and eventually to supplement retirement. Matching
contributions to these accounts could be financed by refundable tax credits.

George Bush had a good couple of weeks. Democrats are now in danger of being dazzled by
him, even though the man lost the popular vote and has no mandate for his agenda. Democrats
are supposed to stand for a whole other public philosophy, remember? It's time they offered
one and fought for it.

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