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10/10/91 312
TME TO REPEAL THE COLD WAR TAX The conapse, of ft Soviet empire and
the end of the cold war have made the world a safer place. They
also have cr eafted a long overdue opportunity to reduce the tax
burden on Americans. With significant reductions in
previousIrproject6d defense spending likely to occur in-fume years,
Congress quickly should enact tax reduction legislation. Lowering
taxes will stimul a te an economy burdened by excessive t and
hampered by last yea's -decision to enact the largest one-year tax
increase in American his. tory. Morwver, a commitment to red= taxes
will preclude special interest schemes to use savings in the
defense budget to fuel yet another domestic spending binge. Several
lawmakers seem to understand the mportance of triminnig
spending-domestic as well as Mmse-to, help finance a reduction in
taxes. Senator Bill Bradley, the Now Jersey Democrat, this week
proposed legislatio n giving families a $350 tax credit for each
dependent child. This $116 billion, five-yea tax cut would be
offset by a $119 billion reduction in currently projected spending
Koh over the five-year period. Even House Majority I ca Richard
Gephardt, the bdis s ouri Democrat, declared in vacbaractezistic
fashion that"We would like to see if we can re=n some of the m6ney
to the American people." On the RepukHcan skle of the aisle. tax
cut proposals range from amoinic growth legislation proposed by
Sens Malcolm Wa l lop of Wyoming and Tom DeLay of Texas (S. 381,
HJL 960) and California Representative David Dreier MJL3290) to
family tax relid, bills intr*iuced by Senn Dan Coats of Iddliens
and PFVP. FmakWolf of Virgink (S.710,HIL1277). TO dir, extent dim
is die peace d ividend, other than peace itself, the money should
go, back to the American people. Sim f Warid War IL the American
taxpayer has paid a heavy prim defending the wmid hom Soviet
aggression. Mic ddimse budget. just like any other fam of
government spending, diverted resouzces out of the productive
sector of the economy. Money spew on battleships, jets, missiles,
and tanks was money do families and businesses could have spent on
education; factories, homes, and jobs. 7be price of Awdom was
heavy. Rmahft Prqwe & UnMw many other pvernmM pqFams, hoirem.
da many. spew an ddense, amaDy produced results. Ronald Reagan's
ratorafim of Amesim's defenses in the early 1980s, combined with do
Soviet ecoomy suacring to a halt thealm to seventy yam of socialis
central planni n g. finally I i S1 - about the Soviet Union's
political collapse. The apparent end of a major military threat
from what remains of do Soviet Union does not inean, of course.
that the United States con dismude its defenses. Ma recent cwfiict
in the MIldle F A st and the continued potential for dangerous
turmoil in the 6 f rn P , Soviet Union an i - m g.arpments for
caution and military preparadML In particular, the, U.S. must be
ready to defend itself Arm sudden attack by smaller cownries with
high Vchnology w e spons, rather than itself primarily from
large-scale assaults. This danger underscores the case for a shift
in military resources w such programs as die Strategic Deftse,
Initiative. But this prudent _g of the U.S. arsenal still could
free up tens of bill i ons of dollars. The growing bipartisan
consensus for tax relid, however, does not guarantee taxpayers will
reap the benefits of a lower defense budgeL Powerful lawmakers an
Capitol HUI we eager to, use deftse budget savings to, create now
domestic spendin g programs or expand existing ones. As a result.
even though last
year's budget deal already means record increases 'in domestic.
spendin -manylawmakers envision a surge. .9 .of new domestic
spending. This will mean taxxel@ef is sacrificed at the altar o f
special -interest politics. Arguments for more domestic spending
have little merit. Whether measured;in nominal or
inflation-adjusted dollars, domestic spending is at. record levels
and increasing rapidly. Because of 'last year's budget deal,
domestic d i scretionary spending will grow 91 percent faster than
needed to keep pace with inflation between 1990 and 1993, while
dom.Iestic: entitlement spending will climb 131 percent faster ihan
inflation from .1990 -to 1996. And unlike the money spent for
defense , it is not easy for advocates of increased domestic
spending to identify.programsIthat already have solved the problems
for which they were created. Poverty rates.have become more
irtt@ractable and families less stable since the War on Poverty
t6g'ati. St u dent test scores have fallen as federal aid to
education has mounted. Indeed, in general, -the federal government
seems ill equipped to solve many -of the problems that exist in
America, and in several ,instances its programs may make the
problems worse. T he dismal record of federal attempts to combat
domestic problems suggests what is needed is not more money but a
change in strategy. If lawmakers truly are concerned about p6verty
and falling living standards in, America, for instance., they
should cui'ia x es. After Reagan's tax cuts we're fully in place,
the economy began its longest-ever period of peacetime growt@..
During that economic @001!11, the official poverty rate fell from
15.2 percent to 12.8 percent, inflation-a4justed gross national
product cli m bed 32 percent, over twenty million new jobs were
created, and inflation-adjusted average income for even the poorest
20. percent of households jumped by 12.6 percent. _.-Undoft Damage.
Using the peace -dividend t6 cut. taxes would do far more to deal
wit h the domestic problems fa6edby Americans than a raft of new
-programs. More immediately, a tax cut would help. undo. P, of the
damage caused by last year's M-conceived budget deal. The current
economic stagnation is in no small put a result of the record t ax
increase impos6d on America's workers, consumers, and businesses
last year. Before the tax increase, politi inns proinised that the
money would be used to reduce the deficit. But as usual, the new
tax revenue was exaggerate# because policy makers ignor e d the
fact that higher taxes slow the economy. The shortfall in tax
collections caused by the recession, combined with unwarranted
increases in domestic spending, has pushed the projected deficit in
fiscal year 1992 to $350 billion, an all-time record. Po l icy
makers have what should be an easy choice. Do they transfer defense
savings to domestic spending priogra@ms, leaving the tax burden on
the'productive sector of the. economy unchanged? Or, do @hey use
this historic opportunity to grant sweeping tax rel ief to American
families and businesses? The answer should be clear.
Daniel J. Mitchell John'M. Olin Senior Fellow
F or Further Information: Daniel L Atchell, "rax Rates, Fairness,
and Economic Growth:.Lessons From the 1980s," Heritage.Foundation
Background er No. 8% October 15,1991. Stuart K Butler, '7he Pe*ce
Divided- It Belongs to the Pe6ple,:Not Congress," Heritage
Foundation Backgrounder-No. 752, February 9. 1990.
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