WE'RE IN THE MIDST of a stock market crash, the sudden shrinkage of everyone's retirement accounts, and a potential second dip of a recession. So what are former treasury secretary Robert Rubin, ex-White House aide David Gergen, and Al Hunt of the Wall Street Journal calling for? An end to President Bush's tax cut, which was passed last year and will play out over the next nine years. What's more, they're passionate about it. And it's not just those three, who are representative of the political and journalistic establishment in Washington and New York. They are not alone.
Could there be a worse idea? A more economically harmful idea? A more politically destructive step the president could take? I don't think so. Bush is already squishy on domestic policy, failing to fight for his agenda on Capitol Hill--including confirmation of conservative judges, approval of oil drilling in the Arctic National Wildlife Refuge (ANWR), anti-cloning legislation, and what's left of his faith-based initiative. Capitulating on taxes would remove any pretense that Bush is a serious player in domestic policy.
Rubin, now director and chairman of the executive committee of Citicorp Inc., says the budget deficit is a much greater threat to the economy than the corporate fraud scandal is. This could be true only if Rubin believes the corporate flap is no threat whatsoever. I doubt he thinks that. In the Washington Post last Sunday, Rubin offered his plan for restoring investors' confidence in the stock market. Recommendation number one: Consider eliminating the tax cuts slated for next year and beyond. He went further in a Newsweek interview. "We don't have to raise taxes," he said. "We just have to postpone or cancel what would otherwise happen in the later years." Rubin insisted deficits caused by the tax cut are having a bad "effect on the markets." Hunt said something similar on CNN.
It makes one wonder if they lived through the 1980s. Then, deficits were a much larger share of the federal budget and the gross domestic product than they are now, and the economy and the market boomed--with only a brief interlude in late 1990 and early 1991 for a shallow recession caused by the Persian Gulf war. Compare that with the impact of the tax hike passed in 1993 with the strong support of President Clinton and Rubin. The rate of economic growth fell the next year. In any case, the relationship of deficits to growth and a rising stock market is not what Rubin suggests it is.
How would erasing the tax cut affect investors now? They are reeling already, worried their retirement accounts have dropped so much that the leisurely days they'd planned for their retirements won't happen. Telling them they won't get the income tax cut they were expecting--that they'll have even less income than they'd thought--is highly unlikely to spur them to start buying more stocks or anything else. Quite the contrary. They'll feel poorer than ever. Rubin has it exactly wrong. Allowing taxpayers to keep more of their own would have the effect he's seeking.
Gergen has a different take. He wrote in the New York Times that Bush would demonstrate strong leadership if he asked Americans to sacrifice for the future. How? His first suggestion is "to roll back his tax cuts and propose that the savings be redirected toward a broad social cause like improving the lives of children." Gergen has another idea, too. A group of "wise men" should gather to decide what to do with the budget and the economy. This is the classic solution to any problem by the Washington establishment. Rather than help, it's likely to make matters worse by signaling to the country that the problem is too big for the Bush administration to solve.
A final question: Why do liberals and establishment figures hate tax cuts so much? The reason is they believe in government. They believe government can do things that people can't do for themselves, like "improving the lives of children." And they're not really concerned about the deficit. If they were, they'd be leaning on Congress not to pass a prescription drug benefit, the most costly entitlement of all time. On that subject, we hear not a peep.
Fred Barnes is executive editor of The Weekly Standard.