Bush’s $1.6 Trillion Plan isn’t a Tax Cut–it’s a Budget Buster

If you don’t like the conventional wisdom produced by the media-political complex, just wait a couple of weeks. Right before our eyes, the conventional wisdom on President Bush’s tax cut proposal is changing, and fast.

Was it just two weeks ago that the Bush tax cut was roaring toward approval? Congressional conservatives were declaring that a much bigger tax cut would be needed.

Suddenly, Bush’s $1.6 trillion plan was transformed into a supposedly reasonable, even “centrist” idea. Democrats were said to be cowering and caving. The massive coverage of Bill Clinton’s pardon of financier Mark Rich was putting Democrats on the defensive and making Bush look good.

But the conventional wisdom almost always leaves out the obvious. Sometimes, ideas fall under their own weight, as is beginning to happen with Bush’s proposal to repeal the inheritance tax. Sometimes, politicians live up to their past statements and principles. That’s what moderate Republican Sens. James Jeffords of Vermont and Lincoln Chafee of Rhode Island did when they called Bush’s tax cut too big.

Public opinion is usually less fickle than Washington conventional wisdom, and no matter how you sliced up the polls, a massive tax cut tilted toward the wealthiest taxpayers was never popular. Rep. Ellen Tauscher, a moderate Democrat from northern California, argues that the tax cut has lost steam because “we haven’t been doing much in this Congress and have had a lot of time at home.” Their constituents like tax cuts—many in her affluent district, she notes, would benefit from Bush’s plan—but they have higher priorities, including keeping interest rates down, paying down the debt and fixing Social Security and Medicare.

And political parties almost always bounce back. That’s what’s happening with congressional Democrats.

Their core strategy for pushing down the size of Bush’s tax cut depends on slowing the rush to passage and waiting for Bush to unveil his budget. The idea, says Senate Democratic leader Tom Daschle, is to insist that “this is a budget debate, not a tax debate.”

The tax cut is already forcing the administration to make sharp reductions in programs that are popular in Congress, and among voters. Moreover, by putting a large tax cut ahead of his other three big promises—to fix Medicare, reform Social Security and rebuild the military—Bush is limiting the choices available in all these areas.

If the federal Treasury is depleted, it will be harder to provide a prescription drug benefit for the elderly and put even more pressure on Medicare and Social Security. Bush has already postponed his military buildup. Pro-defense Democrats like Tauscher wonder whether he is using a readiness review to keep future defense spending increases out of the current tax and budget debate.

The biggest surprise is the growing pressure to keep the inheritance tax. Wealthy Americans led by William Gates Sr. and Warren Buffett have stepped in to argue that inheritance taxes are designed to limit the growth of an aristocracy of wealth. And if the tax is not just reformed but repealed, average Americans will pick up the slack in either higher taxes or reduced services.

If these megamillionares think repealing the estate tax is unfair to average Americans, what should average Americans think?

But support for repealing the inheritance tax was always less robust than congressional roll calls suggested. Privately, politicians say that former President Clinton’s promise to veto estate tax repeal made it easy for members to vote for a bill they knew would never become law. Now, even moderate Republicans who are broadly sympathetic to Bush’s tax program—among them Reps. Mike Castle of Delaware and Chris Shays of Connecticut—think, as Castle put it, that reforming the inheritance tax “would be more popular than total elimination.”

Democrats have many ideas about how a smaller tax cut should be configured—whether it should focus on the bottom income tax rates, on the payroll tax, or on a straight rebate from surpluses that actually materialize. For now, Daschle acknowledges, that means there is no single Democratic alternative to the Bush plan.

But Daschle argues that this may be more blessing than curse, since Democrats want to move the debate from a narrow focus on tax cuts to a broader discussion of what Washington should do with the surplus—and to whether Bush’s budget numbers add up. To give the numbers a chance to sink in, Democrats will have to insist that a headlong scramble toward a large tax cut is a sure way of getting the country into budget trouble again.

Daschle is quite ready to slow things down: “Haste makes waste, my mother told me.” She’s a shrewd strategist and so is he.