Remember Tax Cuts?
From the July 4 / July 11, 2005 issue: With Social Security going nowhere, it's not too soon for the president to start recapturing the high ground of tax cuts, economic growth, and opportunity.
Jul 4, 2005, Vol. 10, No. 40 • By WILLIAM KRISTOL
TAX CUTS--especially the supply-side tax cuts of May 2003--were the controversial center of the Bush administration's first-term economic policy. Most Democrats opposed most of the tax rate reductions. John Kerry promised to repeal many of them if elected president. The president, and Republicans running for the Senate and House, promised to make them permanent. (For reasons having to do with artificial out-year budget calculations, most of the Bush tax cuts are scheduled to expire over the next few years.)
Bush won and Kerry lost. Republicans increased their margins in Congress. So a bill to make the tax cuts permanent should be moving through Congress as we speak, no? No. The president occasionally refers to his wish that this be done, but tax-cutting has taken a back seat--way at the back of the bus--to his top priority for the second term, Social Security reform.
But Social Security reform is going nowhere. Whatever the merits of the president's ideas, they're not going to become law this year or next. There's no dishonor in trying and failing to enact a major public policy reform. But it's going to be time, soon, to throw in the towel. A sense of dignity and propriety argue against too sudden an abandonment of this effort, so we'll spend a couple of months reading about good-faith efforts at jump-starting reform. But surely Social Security reform will be allowed to die with dignity by, say, Labor Day--perhaps little noticed in the excitement of a Supreme Court fight. The president can take credit for laying the foundation for future efforts, and the caravan can move on.
There has, of course, been a political cost to the emphasis on Social Security reform. Part of it is an opportunity cost. If the president talks about Social Security, he doesn't talk about tax cuts. But it's a little worse than that. The message the president has been delivering on Social Security is one of doom and gloom--the horrible burdens overhanging us in the future if we don't start eating our spinach with benefit cuts, and squirreling away our nuts in private accounts. As a political drumbeat, this message has drowned out any talk of economic opportunity and optimism. In fact, in recent attempts to sell Social Security reform, the president with all his talk of "economic security" has almost begun sounding like our statist friends across the Atlantic, Jacques Chirac and Gerhard Schröder.
Luckily, that's all coming to an end. And it's not too soon for the president to start recapturing the Reaganite high ground of tax cuts and economic growth and opportunity. He can do that in two easy and obvious ways.
First, he can make clear that his tax cuts worked. The 2003 cuts in personal income rates, and in the tax rates on dividends and capital gains, have helped produce economic growth of better than 4 percent a year--as non-tax-cutting European economies have stagnated. Unemployment here is down to 5.1 percent, while it remains 10 percent or more in Germany and France. The Dow is up by about 24 percent since May 2003, and capital spending by business is up some 22 percent.
And tax revenues are up. As Stephen Moore has pointed out in the Wall Street Journal, the supply-side Laffer curve has worked. Federal tax receipts are up by over 15 percent so far this fiscal year--and state tax receipts are up 7.5 percent. Individual and corporate receipts are up some 30 percent in the two years since the tax cut. The budget deficit looks as if it will be down by some $60 billion this year.
It's a Bush administration success story. They should tout it. Usually politicians seek to forget--and to have others forget--their failures. In this case, the Bush administration has forgotten to take credit for its successes. Tax cuts have been orphaned. But it's never too late to remind the American people that Republicans pushed through, and the Democrats opposed, tax cuts.
And then the president can ask that the tax cuts be made permanent. Start the drumbeat slowly, build up a bit in the fall, and then you've laid the groundwork for a strong State of the Union in January: Insist that Congress's top 2006 agenda item be to make the cuts permanent. Assuring the permanence of the tax cuts would provide a tonic for the stock market, and for investor and consumer confidence. It would also be a much-needed tonic for the Republican party.
It can't happen too soon: Arrivederci, Social Security reform! Buon giorno, tax cuts!