- The Washington Times - Thursday, March 8, 2001

Supporters of President Bush's tax-cut plan are raising a troubling question: How much of a real stimulus will it actually deliver this year to an economy that has stopped growing? Will it deliver any at all?

Until now, the six-year Bush plan has been framed by the macro-numbers that describe their cumulative effect once they are fully phased in in 2006: $1.6 trillion over 10 years, which would return a big chunk of the nearly $6 trillion in projected surpluses back to the private economy for investment, savings and increased consumer spending.

But when the House Ways and Means Committee released the details of its bill, the tax-cut numbers for this year looked woefully anemic: It would cut the lowest income-tax bracket to 12 percent from its current 15 percent. That amounts to $360 in income-tax cuts for couples and $180 for single filers.

In a $10-trillion-a-year economy that has all the earmarks of sliding into a recession, the committee's bill would amount to a puny $5.6 billion tax cut in the first year.

"Pardon us if we're totally underwhelmed by the mess they're making of George W. Bush's tax proposal," the Wall Street Journal remarked when the fine print came out of the committee. "The immediate lowering of the lowest tax bracket by 3 percentage points is ridiculously timid."

Rep. Lloyd Doggett, Texas Democrat, agreed. "This is pretty wimpy help," giving taxpayers about a dollar a day in tax relief, he said.

Even Ways and Means Chairman Bill Thomas was reduced to saying it was not just the dollar amounts that were important to restoring the economy's health this year, but "the psychological impact as well."

Which begs the question: How can such a tiny first-year tax cut have much, if any, of a stimulating effect on the economy?

When I asked White House economic adviser Larry Lindsey if he thinks the tax cuts will revive the sluggish economy before the year is out, his response was surprising and troubling:

"I wish in the first year we could have had a bigger tax cut," he told me in an interview in his office in the West Wing. That signaled that Mr. Lindsey, the architect of the Bush tax-cut plan, fears the first year's tax cuts are too anemic to have much of an effect on a macroeconomic level.

When I pressed Mr. Lindsey again to say whether he believed the first year's tax cuts, as approved by the committee, would be able to lift the economy out of its malaise, his response was not very reassuring: "I don't have an opinion. I think they could help."

Mr. Lindsey, too, talked about the "psychological effect" of the initial tax cuts in 2001, but the actual fiscal impact of so small a tax cut in so large an economy is now a very big question mark in the White House's inner councils.

Some of Mr. Bush's senior advisers ruefully remember their experience in the Reagan administration, when they caved in to Congress' demands that President Reagan's tax-cut plan be phased in more slowly than he originally wanted. They soon regretted that decision, because the recession deepened and lasted two long years.

Meanwhile, the Democrats continue to play their class-warfare game against the Bush tax cuts, charging that the cuts are too big (they are actually smaller than the Kennedy and Reagan tax cuts), and that 43 percent of their benefits would go to the rich.

That percentage number, which comes from the liberal anti-tax-cut group Citizens for Tax Justice, is shamefully dishonest. "They are wrong," Mr. Lindsey told me, pulling out a distributional tax table prepared by the Joint Committee on Taxation, which has been Congress' official arbiter of tax numbers for decades.

That table shows that the top 1 percent of income earners people making more than $200,000 a year and up, who pay 31.5 percent of all income taxes would get 22.3 percent of the Bush tax cuts. More importantly, they would end up paying a higher share of the taxes 32.6 percent once the plan was fully phased in.

At the lower end of the income scale, the JCT's analysis shows that workers earning $75,000 or less would reap 34.2 percent of the tax cuts in the Bush plan.

How have the Democrats come up with the 43-percent figure? They have combined the tax benefits from repeal of the estate tax with tax cuts for the top 1 percent, which is like comparing apples to oranges.

"The estate tax is paid by an estate. It is not an income tax. It is bogus to combine the estate tax with the income tax for distributional purposes, and that's what Citizens for Tax Justice has done to come up with that figure," Heritage Foundation economist Bill Beach told me.

When the Bush tax-cut package is fully implemented, this economy will soar for years to come. But whether the timid Ways and Means version of the plan will deliver the kind of stimulus that is needed to pull this economy out of the doldrums this year remains deeply in doubt.

And it seems that Bush adviser Larry Lindsey is one of the chief doubters.


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