Check's in the Mail

How the tax cut went from impossible to inevitable

Michael W. Lynch from the August/September 2001 issue

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The concern on the left, however, is that the bill is actually much larger than advertised. "The thing that always struck us was that he proposed this $1.6 trillion plan, the budget resolution clipped that down to a $1.35 trillion plan, and somehow you ended up with everything that was in the Bush plan. Plus you got the pension stuff and plus you got the education stuff," says Joel Friedman, a senior fellow at the Center on Budget and Policy Priorities, a left-of-center think tank that analyzed every permutation of the plan.

Friedman is referring to increased limits on education savings accounts, deductibility of student loan interest, tax deductibility for college tuition, and increased limits on 401(k) plans that were added to the bill in Congress. "By monkeying around with the numbers, they were able to squeeze more into a smaller package than Bush originally did." MIT economist and New York Times columnist Paul Krugman places the true cost at nearly $2 trillion.

Even more worrisome for Democrats is that they fired their entire rhetorical arsenal at this tax cut. It "benefited the rich," they said. It would hurt -- or at least not help -- the economy, would raid Medicare and Social Security, would counter the public desire for debt reduction and new programs, and on and on. Yet the package still passed in record time. Already facing what they consider an average loss of more than $100 billion a year in federal revenues, they fear that the entire package will be popular and made permanent.

The effects of this bill, therefore, will not only arrive in taxpayer mailboxes in late summer (and in more take-home pay starting in July). The effects will also be felt in this summer's appropriations process and in annual budget wrangling for the next decade. This is not a side effect, but one of the tax cut's core values, and the reason it was fought so bitterly. Republicans have demonstrated over the last few years that they are as incapable as Democrats of not spending taxpayer money. Like boozers who take a pill to make them sick should they weaken and drink, they need to deny themselves the opportunity to spend, regardless of which party controls the purse strings.

"We've said, 'Look guys, this money is not available to be spent,'" says Norquist. He points out that of the projected $5.6 trillion surplus, $2.8 trillion is slated to go to debt reduction and at least $1.3 trillion for tax cuts. That leaves $1.5 trillion for new spending, provided the surpluses meet projections. "This is why I never got too excited about the shape of this tax cut. This wasn't a pro-growth tax cut, it was a smaller-government tax cut."