February 13, 2001 | Commentary on Taxes
My, how the political landscape for tax cuts has changed.
As recently as Labor Day, those of us who favor cuts were pushing them primarily from the standpoint of simple justice, reminding folks that it's their money piling up in Washington and that they deserve to get some of it back.
Tax-cut opponents were unmoved.
Then a sluggish holiday shopping season made clear that our once-roaring economy was beginning to slow, and tax-cut advocates pointed out that cuts could help rekindle growth and prevent a recession.
Tax-cut opponents began fidgeting.
A month after Christmas, Federal Reserve Chairman Alan Greenspan testified before Congress that allowing budget surpluses to pile up unabated could actually jeopardize our "long-term fiscal stability." In his judgment, tax cuts are now a necessity.
Tax-cut opponents started muting their "no-rate-cut" mantra.
Less than a week later, the Congressional Budget Office issued a higher estimate of the expected budget surpluses: $5.6 trillion over the next 10 years. That's about $1 trillion more than it was forecasting just six months ago.
The anti-tax cut crowd, for the most part, is humming a different tune these days. Discussions in Washington center not on whether taxpayers will get a tax break, but on when and how large.
How did this happen in a relatively short period of time?
Believe it or not, it's the result of having too much money. Even if Congress paid off every dime of the national debt (now about $3.4 trillion), there would be more than $2 trillion left over, according to current estimates. Besides, paying the debt down to zero isn't really possible, Greenspan explained, because some $1 trillion of that debt is tied up in long-term Treasury bonds.
So what happens to the $3 trillion that's left over? We can't have it sitting around in some government vault. Not to worry, say tax-cut opponents-just allow the federal government to invest that money in the private sector.
But as Greenspan noted, having the U.S. Government become the largest stockholder in some of America's largest corporations would be a singularly bad idea, because it would be all but impossible to "insulate the government's investment decisions from political pressures." Moreover, it would wreak havoc with the economy.
To see why, ask yourself: Would elected officials resist investment "advice" from well-connected interest groups that contributed heavily to their campaigns? Could our markets sustain the damage inflicted by politicians with a huge amount of taxpayer funds to throw around? And could elected officials avoid making "political correctness"-rather than financial soundness-a primary consideration in their investment decisions?
The fact is, these income tax overpayments-and that's what they are, no matter how much politicians would like to believe otherwise-must be returned to their rightful owners: the hard-working Americans who earned them in the first place.
Government has more than enough cash flow to keep paying down the national debt to a reasonable level. Congress should take the rest and do two things: 1) establish personal retirement accounts for Social Security, and 2) reduce income tax rates at all levels.
There's no question tax-cut foes have been painted into a corner. Will they finally do the right thing?
Edwin Feulneris president of The Heritage Foundation, a Washington-based public policy research institute.
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