- The Washington Times - Wednesday, April 11, 2001

Last week's Senate vote in favor of a much reduced tax cut — $1.2 trillion versus the $1.6 trillion George W. Bush had asked for — is being painted by the White House as nothing but a speed bump. There are a litany of excuses for the setback: money will be added in conference; this vote was for a budget blueprint, not actual tax legislation; it was far more than Democrats had previously favored and so on. These are all true. But one is still left with a nagging concern that Bush has never really sold his tax cut to anyone except those predisposed to all tax cuts.

The problem dates back to 1999, when the Bush tax plan was first devised. Curiously, none of Washington's famed investigative journalists have ever made the effort to find out exactly how this tax plan came to be. All we know is that a group of economists led by Larry Lindsey, a former Harvard professor, were commissioned to draft the plan. But to this day, no one has explained what principles the economists were given to operate under, what alternative plans were suggested and rejected, or what role Bush played throughout the process.

We do know that the political and economic circumstances were quite different at the time. The economy was growing strongly, with no hint of a recession on the horizon. Budget-surplus estimates were much smaller. And Bush was locked in a difficult political struggle for the Republican presidential nomination.

We can assume that at the time the tax plan was conceived, Bush's principal concern was winning the Republican nomination. During the summer of 1999, his main opponent appeared to be publisher Steve Forbes, running hard to his right on the flat tax. He was eager to remind Republican primary voters that Bush's father had allowed Bill Clinton to win in 1992 by raising taxes in 1991, for which he was vilified by many conservative Republicans. These are exactly the voters that disproportionately make up the primary electorate.

Therefore, it is reasonable to suppose that Bush's primary goal in devising a tax plan in 1999 was to neutralize Forbes and distance himself from his father's apostasy. Clearly, he could not do so by merely saying he would not raise taxes — that would only have reminded people of his father's broken “no new taxes” pledge. And he could not run on the flat tax because Forbes already owned that issue. So a Reaganesque across-the-board tax-rate reduction would have seemed the obvious way to solve Bush's political problem.

All this is well and good, and apparently good politics. It won Bush the Republican nomination and gave him a good, although not overpowering issue in the contest with Al Gore. But because the tax plan was designed mainly to appeal to Republican primary voters — who generally support tax cuts anytime, anywhere, for any reason, and the bigger the better — Bush was never really forced to explain the rationale for his tax plan. Why was $1.6 trillion just the right size? Why was there no cut in the capital gains tax? Why weren't all tax rates cut equally, as Ronald Reagan had done?

Many people, such as myself, assumed that once the election was over, Bush would take the opportunity to rethink his tax plan. Clearly, economic and political circumstances had changed. In particular, the economy had gone from strong growth to a near recession in the time since the tax plan was first proposed. But at the same time, estimates of the budget surplus were even larger. I doubt that many Republicans would have faulted Bush for making a few adjustments to his tax plan, given these factors. But instead, he chose to put forward the same identical plan, with no changes whatsoever.

I also expected a more coherent explanation for why this particular plan was the right one for the country today. One can forgive a candidate for not producing a thorough analysis of all his campaign proposals, but one expects more from a president. To this day, the White House has yet to present the kind of detailed economic analysis that will at least tell professional economists why this tax plan is just the one that the economy needs right now. By contrast, the economic plan released by Ronald Reagan on Feb. 18, 1981, was a highly detailed explanation for his tax plan.

Furthermore, unlike the Reagan administration in 1981, the Bush administration has been extraordinarily slow in filling positions with people who could provide analyses and explanations for the tax plan. For example, there are no members of the president's Council of Economic Advisers in place. The CEA is normally a president's primary liaison to the public-policy community on such issues. That is why Reagan made the CEA among his earliest appointments.

Lacking an explanation and detailed analysis of the tax plan early on, the result has been ad-hoc rationalizations that vary from day to day, depending on the political winds. Thus a plan proposed at a time of prosperity has been turned into an anti-recession plan. Even though budget-surplus estimates have risen in the meantime, the administration fought congressional efforts to increase the size of the tax cut. It continues to argue, without providing a reason, that $1.6 trillion — no more, no less — is just right, period.

I believe that Bush's failure to build a solid foundation for his tax cut is what led the Senate to slash it last week. How can the administration now say that $1.2 trillion is too little, when it still hasn't explained where the $1.6 trillion figure came from in the first place?

How can the administration continue to argue that its plan is the best one to turn the economy around when it has never said how much growth the tax cut will produce? The fact is that the $1.6-trillion cost estimate for the tax cut is based on an assumption that it will have zero effect on economic growth. If it raised growth by even a tiny amount, the true revenue loss would be much smaller. Indeed, Harvard economist Martin Feldstein says it would be about $1.2 trillion, exactly what the Senate has given Bush.

It is not too late for Bush to give Congress and the American people a better justification for his tax plan than he has done so far. Its final passage may depend upon it.

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