Cover Story

Debtors' prison?

As President Bush sells his budget to Americans, liberals are saying that Washington cannot cut taxes and reduce the national debt at the same time. But if recent history is any guide, a big spending increase-not debt reduction-is the real alternative to tax relief

Issue: "Bush's tax-cut plan," March 10, 2001

at the White House-An unseasonably warm Tuesday afternoon diverted no one at the White House last week, where the everyday frenetic pace grew even more frantic as President George W. Bush prepared for his first address to a joint session of Congress. While some journalists dawdled for remarks from visiting Colombian President Andres Pastrana, America's TV news stars trickled out from a special speech preview with Bush aides. The parade began with ABC's Sam Donaldson, then his colleague Peter Jennings in fashionable sunglasses, followed by NBC's Tim Russert, slapping the backs of Tom Brokaw and CBS's Bob Schieffer. The administration may have been trying to prepare them for a message that the federal establishment in Washington, including the press, considers strange: Federal funds belong to taxpayers, not officials. "The growing surplus exists because taxes are too high and government is charging more than it needs," the president declared in his speech on Feb. 27. "The people of America have been overcharged, and on their behalf, I am here to ask for a refund." The permanent government is used to nodding cynically at campaign promises of tax cuts, expecting that when candidates meet the reality of Washington's built-to-spend culture, the promises will fade, as did Bill Clinton's middle-class tax-cut promise of 1992. But President Bush came to Congress with a tax-cutting plan, just as he proposed on the campaign trail. Congressional Democrats quickly dismissed the refund request in their official response, as House leader Dick Gephardt presented their party and its smaller tax cut as the better answer to debt reduction. "Our plan enables us to keep paying down the national debt, the debt we ran up in the '80s, so we can keep interest rates low and keep our economy growing." But with the latest surplus estimates growing to $5.6 trillion over the next 10 years, is it possible for Washington to do both, to retire public debt and to make cuts in income tax rates? Mr. Bush says yes, and his budget would devote $2 trillion of the projected surplus to debt reduction. Big-spending Democrats say no, and that's where the battle will be joined in the next couple of months as the House and Senate consider passage of Mr. Bush's tax plan. "We hope to get rate cuts passed in the next two to three weeks, and then the pressure point is the Senate," Rep. Paul Ryan of Wisconsin, the newest Republican on the tax-writing Ways and Means Committee, told WORLD. "If they pass this bill, then we will bring withholding down by April 15, a pay raise for every American who pays taxes. If it doesn't pass the Senate this spring, then we'll work on the rest of the Bush plan-the death tax, the marriage penalty-and then send the whole package over to the Senate in July." The Senate will be a harder sell, with liberal Republican Senators Jim Jeffords and Lincoln Chafee already garnering favorable press by proclaiming Mr. Bush's tax relief is too much. The buildup to the Bush budget speech began five days before the address with promises of greater spending. In his first, hastily called press conference in a cramped White House briefing room, the President touted an 11 percent increase for the Department of Education. The next day, the White House leaked its recommendation of a 14 percent increase for the National Institutes of Health. The strategy wasn't solely about talking up big spending hikes: In his Saturday radio address, Mr. Bush announced his goal to hold overall discretionary spending to a growth rate of 4 percent. But when a reporter asked budget director Mitch Daniels where the spending cuts would come from, he joked, "I don't want to ruin the fun of Tuesday night and Wednesday." (He did suggest abolition of some programs, such as subsidies for bringing telephone service to rural areas.) When reporters asked Mr. Bush during his press conference what spending he would cut, he smilingly emphasized the odd Washington definition of a spending cut, and then told it like it is: "This is a town where if you don't increase the budget by an expected number, it's considered a cut.... We'll be slowing the rate of growth of the budget down. That, evidently, is a cut. In my parlance, it's not a cut-when you increase spending, it's not a cut." The major TV networks were not so precise in their language. Despite their afternoon tutorial at the White House, the same old references to spending "cuts" came through during the evening's speech coverage. CBS anchor Dan Rather worried about a "cut-federal-programs" budget, and ABC reporter Terry Moran spoke of "deep, across-the-board spending and tax cuts." ABC and The Washington Post set the stage for Mr. Bush's address by creating a poll that suggested President Bush had a comparatively weak approval rating (55 percent), and that when asked to choose the top priority for the surplus, only 22 percent of Americans named tax cuts. Before the poll came out, White House spokesman Ari Fleischer protested this standard network way of suggesting a lack of public enthusiasm: "If you say to people, you only have one choice for the surplus, you're giving people a false choice. And many of those questions ask it basically in that manner. They say, of the following, what would be your top use? And you get that top use, and it in effect ignores that there are other valid uses." The White House is trying a new strategy by obscuring real or imagined spending cuts and focusing instead on the overall rate of increase in domestic discretionary spending. As he did throughout the presidential campaign, George W. Bush is setting himself apart from the "Republican Revolution" of 1995. Newt Gingrich's troops promised real cutbacks in government, including the abolition of whole cabinet departments, but President Bush is merely putting the brakes on Washington instead of scaring the capital with visions of unemployment lines dominated by bureaucrats. Part of the strategy is to get both grassroots groups and corporate representatives pushing for the Bush plan. Before the Tuesday night speech, conservative stalwarts like Grover Norquist's Americans for Tax Reform joined trade associations like the Food Marketing Institute in promoting the Bush plan. The liberal coalition, meanwhile, was coalescing around a surprising new leader: People for the American Way, broadening beyond battling the religious right to acting as the left's lobbying clearinghouse. PFAW leader Ralph Neas told a Capitol Hill newspaper, "We made a mistake in '81 when we didn't focus on the Reagan tax cut. It's 20 years later, and we're not going to make the same mistake again." The White House strategy also emphasizes the optimistic vision and good humor that Mr. Bush shares with Ronald Reagan, but Democrats last week preferred another connection: the Bush tax cut and Ronald Reagan's much larger reduction that passed in 1981. In the official response to Mr. Bush's speech, Senate leader Tom Daschle declared: "We were promised that if we gave huge tax cuts to the wealthiest Americans, the benefits would trickle down, deficits would disappear, and the economy would flourish." But instead, "Deficits skyrocketed. The national debt quadrupled. High interest rates choked American industries. Unemployment soared." According to Cato Institute economists Stephen Moore and William Niskanen, though, unemployment and interest rates fell by roughly 50 percent from 1981 to 1989, income tax receipts increased by 58 percent, and the real debt (because of spending increases) doubled; it did not quadruple. Despite his disdain for old arguments, President Bush's success with Congress may depend on how the public responds to a revival of the Reagan vs. Mondale tax debate. Republicans are confident. Rep. Pat Toomey of Pennsylvania, who is planning to introduce a bigger tax cut than the Bush plan this year, told WORLD that "We're seeing a revival of the whole supply-side movement." Dealing with a Republican president instead of Mr. Clinton will make all the difference, Mr. Toomey predicts: "The bully pulpit offers the chance to convey the facts. The Bush plan already assumes $1 trillion of spending growth. Liberal opposition is about the desire for a massive increase in spending." Congressman Ryan agreed. "What the critics want is the current spending growth rate of 8 percent or more. That will mean no tax cut, no surplus, no paying down the debt, and no fixes for Social Security and Medicare." How will Mr. Toomey and Mr. Ryan, both in their second term, sell this plan to districts that were recently Democratic? "We've lost 5,000 jobs in my district in the last year and a half alone," Mr. Ryan said. "Energy demand is up 17 percent this winter, and the price of natural gas is up 350 percent. If the local Democrats want to say these people don't need more money in their pockets, I'd love to hear it." But Republicans may also be a threat to the Bush tax and spending plans, if the second Clinton term is any measure. Cato Institute fiscal analyst Steve Slivinski told WORLD, "A comparison of actual spending from 1996 to 2000 with the original congressional expenditure targets set in 1995 reveals that Republican Congresses went over the baseline totals by $187 billion." Even in the present fiscal year, while President Clinton proposed $633.1 billion in domestic discretionary spending, the Republican Congress has approved $22.5 billion more than the Democratic White House wanted. President Bush may thrive on being underestimated, but he shouldn't underestimate the power of Washington to overrun the best-laid plans to restrain government growth.

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