Ladies and gentlemen, your attention please to ring number three.
Before your very eyes, Republicans will pass what appears to be a
tax-cut bill, while Democrats will denounce the plan as fiscally
irresponsible. This will set the stage for the final act next year: that
great civic fiction we call
the election. Yes, it’s the greatest show on earth, if you happen to be
Polls are showing that 3 in 4 people think taxes are too high, but
very few actually trust politicians to do anything about it. There’s a
reason for this. The GOP has squandered its credibility on the issue
many times over, using fabulous rhetoric to back legislation that
collapses into nothingness on closer inspection. Republican prattle
about tax cuts has become the white noise of American politics.
At this point, the only way the GOP could get the voters’ attention
would be to pass legislation abolishing the income and estate taxes,
starting right now, and replacing them with nothing. Even that might not
be enough, since irritating and unavoidable payroll taxes take a larger
bite out of the
average paycheck than income taxes. To really get attention, the
Republicans might also propose to make Social Security voluntary.
Instead, their tax-cut bill is riddled with a grab-bag of gimmickry,
some of it familiar and some of it new. The major ruse involves
exaggerating the size of the proposed cuts. At first glance, a $792
billion tax cut sounds enormous. A closer look reveals that this cut is
“phased in” over ten years.
This is fraudulent on its face. This Congress cannot bind a future
Congress any more than this Congress feels itself bound by the budgetary
priorities of the previous one.
Given this reality, there’s no reason to restrain the propaganda. Why
not claim to be cutting taxes by $10 trillion over the next fifty years?
Why not announce a $100 quadrillion cut over 100 years? It sounds more
impressive and makes just as much sense.
But let’s say this Congress can in fact bind future ones. Would taxes
be cut by $79.2 billion in each year? Sorry. The first cut is 1 percent
of the total tax reduction — effective in 2003. That comes out to about
$32 per person, four years from now. And who can doubt that the federal
government’s tax take will increase far more per capita?
True, the cuts are supposed to accelerate and culminate in 2009, but
to gain some perspective, think about all the ways that the 1989
Congress matters to current lawmakers. Answer: not at all. Back-loaded
tax cuts, invariably coupled with front-loaded tax increases, are the
political equivalent of a shell game that taxpayers can never win.
The bottom line is that these tax cuts are illusory; they are offered
only as a political drama to be played out in front of the voters next
year. And yet some “moderates” in the party supposedly needed reassuring
to this effect. So the Republicans added a trick no previous Congress
brazen enough to propose.
Under the bill, taxes can only be cut if the interest payment on the
national debt — which is supposed to serve as a proxy for the size of
the debt itself — is lower from one year to the next. On the other
hand, if interest payments rise, tax cuts are off the table. So, to the
Republicans, it is far more important to force taxpayers to subsidize
the government’s fiscal mismanagement than allowing them to keep a
little more of their own money to spend or save for themselves and their
Keep in mind that we are talking here about the House version. By the
time this bill is chewed up in conference, there will nothing left of
The final act of treachery in this circus was performed by Alan
Greenspan. He told a House committee that it’s not a good time to cut
taxes, because a tax cut might unleash inflationary forces. The only way
to understand his remark is in light of Keynesian economics — a series
of big-government myths that attribute inflation to productivity instead
of increases in the money supply.
If we needed any proof that Lord Keynes still rules Washington, this
was it. Ten years ago, no living economist (apart from those associated
with the Austrian School) would have predicted that the economy could
have grown so much without sparking inflation. A tiny tax cut sometime
in the future certainly isn’t going to make the difference. If anything,
prices tend to face downward pressure in periods of high growth.
Was Greenspan, in parroting the Clinton line on tax cuts, being
entirely honest? Well, he comes up for reappointment next year, so it
isn’t a good time to irritate the Appointer in Chief. In the end,
however, his testimony will not endanger an actual tax cut but a staged
one. But at least it puts
to rest the myth that Greenspan is a champion of free-market theory.
Meanwhile, as any man on the street could tell you, neither party is
genuinely interested in doing anything for average people that would
require Washington to give up revenue or power.