How important are tax cuts? Judging from the campaigns of the major presidential candidates, you'd think they were pretty important. Republican George W. Bush has made a huge, broad-based tax cut--$483 billion over five years, as much as $1.7 trillion over 10 years--a centerpiece, if not the centerpiece, of his campaign. And even Democrat Al Gore has called for $350 billion in tax cuts (over 10 years), including everything from a reduction in the "marriage penalty" to targeted tax incentives in areas like education and retirement.
Given these impressive promises, we'd expect to see considerable support for tax cuts in current public-opinion polls. The funny thing is, we don't; we see exactly the reverse. The public is remarkably uninterested in tax cuts and, if anything, is becoming less interested by the day. Consider the following examples, in which people are offered a choice between tax cuts and other possible uses of budgetary resources, starting with Medicare and Social Security.
According to a FOX News poll in March of last year, the public prefers funding Medicare over tax cuts by a 65 percent to 25 percent margin. And the sentiment on Social Security versus tax cuts is even more lopsided: A CNN/Time poll last July found 74 percent wanting to use the budget surplus to stabilize Social Security, compared to just 21 percent who preferred a tax cut.
Even if Social Security and Medicare are taken off the table, the public still finds other uses of the surplus more compelling than tax cuts. In a NBC/Wall Street Journal poll last July, 55 percent of the public preferred using that part of the surplus not dedicated to Social Security and Medicare for "unmet needs," like "education, health care, and national defense." Just 34 percent said they would award themselves a tax cut. Even more impressive, 69 percent of the public thought that once Social Security was taken care of, additional monies should be spent on "education, the environment, health care, crime-fighting, and military defense," compared to only 22 percent who thought that a tax cut was the better use of the money (Pew Center survey, July 1999).
These results suggest that the public has little interest in tax cuts for the sake of tax cuts. Indeed, the only context in which people show enthusiasm for tax cuts is when government programs are put forward in a vague and unspecified way as a use for the surplus. This is nicely illustrated by the July 1999 Pew Center poll, which asked respondents what they wanted to see done with the portion of the surplus not used to shore up the Social Security system. Did they want to see it devoted to a tax cut or to funding new (unspecified) government programs? By a 60 percent to 25 percent margin, the public declared themselves in favor of a tax cut. However, the same poll offered a choice between a tax cut or spending on specific programs such as education, the environment, health care, crime-fighting, and military defense. The result: By an overwhelming 69 percent to 22 percent, the public preferred spending over tax cuts. Other polls have similar findings.
These polls raise interesting questions, such as, why are both presidential candidates emphasizing a policy approach for which there's such tepid demand? In the Republican case, it's easier to understand. One factor is that Bush needed to best his opponents in the Republican primaries, where big tax cuts still play well. But another part of the explanation may spell trouble for the Republicans in November. The GOP appears to be ideologically attached to broad-based tax cuts in an era when they've simply lost most of their appeal.
The Democratic attachment to tax cuts is more puzzling. Of course, part of it is just a sneaky way to spend money, in the case of, say, targeted tax expenditures for education. But part of it, too, may be that they're out of touch. After all, the federal tax burden has now shrunk to its lowest level in four decades, with an average four-person family paying less than in any year since 1965. Given these trends and the strong economy, do voters really need the Democrats to give them a tax break?
The implications deepen when we consider the origins of current Democratic fiscal policy--a policy Al Gore has pledged to continue. In brief, this policy is marked by a rather extraordinary commitment to pay off the entire national debt by 2013, with all of the Social Security surplus--that is, the excess of incoming Social Security taxes over outgoing Social Security benefits--allocated to debt reduction, as well as a considerable portion of the non-Social Security surplus. Under current plans, this amounts to 86 percent of the overall budget surplus being dedicated to paying down the debt and, hence, unavailable for new spending.
Remarkably, the origins of this self-imposed fiscal straightjacket go back to a political move by the Democrats in late 1997, when budget surpluses first started emerging. The idea was to forestall Republican tax cuts--"Save Social Security first" was the slogan. The Democrats proposed taking these surpluses off the table for tax cuts (and new spending as well), which meant, in practice, that they would be used for debt reduction. This was followed in 1999 by acceptance of the Republicans' Social Security "lockbox" concept, which formally committed the Democrats not to spend any of the Social Security surplus (almost three-quarters of the overall surplus), again allocating it to debt reduction. From there, it was a short step to the current commitment to wipe out the debt completely.
But for what purpose? Perhaps the Democrats' recent strategies have less to do with fighting tax cuts than with their desire to give the people what they want even more: debt reduction. The problem here is that the public is only marginally more enthusiastic about debt reduction than it is about tax cuts. Consider the following evidence, in which people are offered a choice between paying down the debt and other uses of the surplus.
A Pew Center poll in February asked respondents to choose among four uses of the surplus: paying down the debt; cutting taxes; spending on domestic programs such as health, education, and the environment; and making Social Security and Medicare financially sound. The result: 44 percent of the respondents chose helping Social Security and Medicare, 24 percent chose domestic programs, 18 percent chose paying down the national debt, and 12 percent chose tax cuts. A CBS/New York Times poll last year found a similar result.
It is important to stress that it is not just Social Security and Medicare that outrank paying down the debt as a use of the surplus; the public also prefers funding other key programs to debt reduction. For example, in a poll last fall (by Public Opinion Strategies and Lake Snell Perry & Associates for the Robert Wood Johnson Foundation), 55 percent preferred helping uninsured families get health insurance to paying down the debt (20 percent) and cutting income taxes (23 percent). More recently, in a December 1999 NBC/Wall Street Journal poll, 38 percent preferred to use next year's surplus for education or universal health care, compared to paying down the debt (21 percent), shoring up Social Security or Medicare (22 percent), and cutting taxes (14 percent).
Similarly, in a Pew Center survey this January, there were an incredible 15 areas more likely to be named as a top priority than paying down the debt, including improving the educational system, providing health insurance for the uninsured, protecting the environment, dealing with the problems of poor and needy people, and dealing with the problems of families with children. And in a Kaiser Family Foundation/Harvard School of Public Health survey last December, paying down the national debt was ranked seventh (out of eight issues) in an assessment of budget priorities.
It is a fact--and a strangely neglected one--that debt reduction has never managed to attain the salience of the last fiscal benchmark, balancing the budget, which was a genuinely popular goal and typically ranked high in the public's list of priorities. You'd never guess this from the reverence with which debt reduction is treated by politicians of both parties. What gives? Why this bipartisan conspiracy to enlist the voters in a crusade they apparently have little interest in?
There are several reasons. The Republicans, of course, find debt reduction useful as a way of avoiding increased government spending. (They are beginning to wonder, however, whether things have gotten out of hand, since Bush's commitment to a big tax cut conflicts directly with a heavy debt reduction program, and his emerging "cut taxes and invest" approach conflicts even more.) Another reason is the tendency of U.S. policy makers to mistake a secondary cause for a period of prosperity--in this case, deficit reduction--for a primary one and ascribe near-mystical powers to that secondary cause. As a result, America's budget surplus has been fetishized into something that must be maintained at all costs, regardless of whether--and how much--it is truly responsible for today's prosperity and regardless of how many social needs must go begging in the meantime.
An additional factor is the public's befuddlement about "saving Social Security." They do not begin to understand the relationship between the Social Security lockbox and paying down the debt (as far as they're concerned, the lockbox money is somehow being socked away to help Social Security), and what any of this has to do with the goal of Social Security solvency. But the issue of debt reduction has become conflated in their minds with their desire to preserve and protect the Social Security system.
This confusion has become useful for the Democrats in a narrow and short-term partisan sense. Any attempt by the Republicans to offer their own large-scale uses of the surplus--chiefly tax cuts at this point, but it could also include new spending--can be instantly criticized as somehow endangering Social Security (witness what happened to Bill Bradley). Bush is now getting bushels of this kind of criticism, and the congressional Republicans, of course, have been hearing it ever since the "save Social Security first" fight in 1997. No doubt, this is an effective way to tar your opponent, as the Democrats have been happily doing for several years, even if the longer-run consequence is to radically limit the scope of Democratic spending initiatives.
A new public mood is emerging. Tax cuts are yesterday's red meat. This makes a Republican quest to resuscitate the issue, as well as a Democratic strategy based around warding off the issue, misguided. They're still fighting the last war, while the public is looking for something new. If that something new involves significant government spending and government action, so be it--the public now shows itself quite willing to consider such an approach.
The Democrats, the party of government, have rehabilitated a pro-government approach by showing toughness on issues like crime, welfare, and debt reduction. The Republicans, the anti-government party, have discredited their own approach by their seeming knee-jerk opposition to all government programs. Perhaps most important, an economy that's finally delivering the goods has put voters in a better mood about the potential of government and the country as a whole. And that potential has yet to be met in a new economy that, despite its strengths, is doing little to solve critical problems in areas like health care, education, retirement security, and economic inequality.
The public believes we can do better--indeed, it yearns for a sense of national mission, a focusing of our national energies on attacking and solving big problems. That sense of mission will not be provided by a big tax cut, nor will it be provided by a crusade to eliminate the national debt. Perhaps it's time for politicians to acknowledge what the public already knows: Money alone can't solve problems, but in the end, "you get what you pay for." It's a message they're now ready to hear if their representatives are ready to say it. ¤
