THE SENATE now takes up its version of the misshapen tax bill the House passed last week. Proponents say the Senate bill is less extreme, but the differences are marginal. It no more deserves to be enacted than does the House bill. The mere half-trillion-dollar tax cut over the next 10 years that some members are floating as a supposed compromise partakes of most of the same defects to an only slightly lesser degree. The president was right to say the other day that he would veto it as well.
The first main problem with the Senate bill is that it's unaffordable. Most of the surplus that would be used to pay for it -- a supposed $1 trillion over 10 years in other than Social Security funds -- is an accounting illusion. For the bulk of the surplus to materialize, spending on most domestic programs -- federal law enforcement, highway grants, air traffic control, veterans' benefits -- would have to be cut more than 20 percent in real terms. This Congress is flinching from even the first stages of those cuts -- as it debates how to spend the surplus that depends on them.
Nor, in the long run, would even the imaginary surplus be enough to cover the cost of the tax bills, House or Senate. Both were written to obscure their cost by delaying their full impact until after the 10-year estimating period customarily used to evaluate such bills. Projected costs for the second 10 years, when the bills would be fully in effect, are triple those for the first 10. The effect of these bills would be to throw the government back into the cycle of borrow-and-spend from which it is only now emerging. They would strand the government, in the sense of leaving it without sufficient resources to meet its basic obligations, including the cost of Medicare.
The bills would also disproportionately benefit the better-off. Some of the PR surrounding the Senate bill suggested it would be a middle-class tax cut, but mostly that's not so. Tax cuts generally favor the better-off, since they are the ones who pay the most taxes in our system. But the tilt in these goes well beyond the share of taxes that the better-off pay. The vocabulary varies -- an end to the so-called marriage penalty, a reduction in the estate tax, an increase in retirement savings incentives -- but in terms of income class, the winners tend to be the same. The damage done to government, and thereby to the society in general, would be for the benefit of a relative few. The cuts would add to the income inequality that has been rising in the society and that the government rightly seeks in other respects to combat.
The economic stimulus would also begin at the wrong end of the business cycle, assuming that the cycle still exists. The current expansion has gone on for most of the 1990s. Labor markets are tight; the Federal Reserve is worried that the economy will overheat. If a tax cut provokes an increase in interest rates, will the average citizen, or the country as a whole, be any better off? The answer is no.
The president says he'll accept a $300 billion tax cut. Even that seems to us to be a step in the wrong direction, the more so because it would likely be part of a deal -- a tax cut in return for a Medicare drug benefit and other spending increases -- the total cost of which would be greater, and the funds for which are not in sight. The price of a deal, if they cut one, will be a further mortgage on an already overburdened future.