Jeff Jacoby
July 16, 2004
For fiscal conservatives, the choice this election could hardly be more depressing.
In the Republicans' corner is George W. Bush, who presides over the most bloated federal budget in US history. Bush's profligacy has left in tatters the traditional GOP claim to fiscal rectitude. He has uncomplainingly signed into law every pork-stuffed appropriations bill sent to him by Congress. He has flooded the government's books with red ink. And he has embraced new schemes for draining the Treasury, including the largest expansion of the welfare state in decades -- the prescription-drug entitlement, which will cost, over the next decade, more than half a trillion dollars.
When, from the Democrats' corner, John F. Kerry excoriates Bush for "three years of reckless spending and skyrocketing deficits" and declares that what America needs is "a return to the fiscal discipline that brought record surpluses and the largest economic expansion since World War II," he speaks nothing but the unadorned truth. But Candidate Kerry doesn't preach fiscal discipline very often, and there is no reason to believe that a President Kerry would practice it.
The Democratic standard-bearer has committed himself to dozens of costly campaign promises -- everything from expanded Amtrak service in rural areas to a new program for preventing childhood obesity to $50 billion in additional aid to the states. According to the [url=www.ntu.org[National Taxpayers Union Foundation[/url], Kerry's budget proposals would add a breath-catching $226 billion to the federal budget in the first year of his presidency. Over a four-year term, they would cost more than $621 billion -- a tab that would have to be paid either with steep new taxes, or by taking the government even more deeply into debt.
The 2004 presidential race pits a big-spending Republican Tweedledee against a big-spending Democratic Tweedledum. What's a fiscally responsible voter to do?
Bush promises to cut the budget deficit in half by the end of 2008; Kerry promises the same thing. Bush says he'll do it by "holding the line on federal spending;" Kerry, by "restraining spending growth." (Even their cliches are interchangeable.) What both are really counting on is economic growth: The Congressional Budget Office is already projecting a nearly 50 percent drop in the deficit by 2008 even if nothing else changes at all.
Still, there is at least one significant fiscal-policy difference between the president and his challenger. Bush strongly defends the 2001 and 2003 tax cuts, and has been urging Congress to make them permanent. Kerry denounces Bush's "tax cuts for the wealthy" and says he would seek to restore the old tax rates for incomes higher than $200,000. At times Kerry says he would use the revenue from higher taxes to fund new social welfare programs. At other times he suggests that raising those taxes is a key to reducing the deficit.
The idea that tax cuts cause unbalanced federal budgets comes right from the Democratic songsheet. But is it true? If, as Kerry promises/threatens, the tax relief of high-income Americans were repealed, would the deficit melt away? Economists at the nonpartisan
Tax Foundation recently ran the numbers, using an economic model similar to that of the congressional Joint Committee on Taxation.
They began by calculating the effect of restoring the top two income tax rates (now 35 percent and 33 percent) to their pre-Bush levels of 39.6 percent and 36 percent, and of once again double-taxing the dividends of upper-income taxpayers. That would bring in $27 billion, reducing this year's deficit of $477 billion by less than 6 percent. Deficit remaining: $450 billion.
So the Tax Foundation went further. It assumed that anyone with dividends or capital gains qualifies as "wealthy" and restored the old tax rates on those earnings for all brackets. That would reduce the red ink by another 4 percent, to $430 billion.
In short, overturning all of the Bush tax relief for "the wealthy" would reduce the deficit by a mere 10 percent.
Well, what if *all* the old income tax rates were restored to their pre-Bush levels, and the new 10 percent bracket for low-income workers eliminated? That would painfully squeeze millions of middle- and working-class Americans, but it would enrich the Treasury by $70 billion. The deficit would then be down to $360 billion -- still 75 percent of where it stands now.
Finally, the economists calculated the impact of going whole hog -- restoring the marriage penalty, repealing the Alternative Minimum Tax adjustment, and lowering the child credit from $1,000 back to $500. Wiping out the Bush tax cuts in their entirety would raise a grand total of $164 billion -- enough to cut the current deficit by only a third.
"Bottom line," the foundation's Scott Hodge and J. Scott Moody conclude, "if our goal is to cut the deficit through higher taxes, there is very little blood left in the stone of individual income."
Bush's tax cuts aren't driving the deficit. Bush's reckless expenditures -- for which John Kerry, as a member of Congress, is partly responsible -- are. The only way to stanch the red ink is to choke off extravagant federal spending. Alas, that is the one thing that neither Tweedledee nor Tweedledum has any intention of doing.
©2004 Boston Globe