Defending America's Tax Relief

by Kevin Carmody | 1/23/02 6:00am

Senate Majority Leader Tom Daschle opened up the 2002 midterm election season a few weeks ago by taking aim at last year's $1.35 billion tax cut. While Daschle did not explicitly say he supported slowing down the implementation schedule, which will take ten years under the provisions of the bill, Senator Ted Kennedy gave a speech on Wednesday to the National Press Club that suggests doing just that. Evidently, Kennedy endorses Daschle's judgment that cutting taxes has caused the most "dramatic fiscal deterioration in our nation's history."

Daschle may imply that the tax cut has caused the government to spill more red ink than before, but a flashback to the deficits of the early 1990s reminds us that that is not the case. If he means that the tax cut has caused great economic stress, he should be reminded of the Great Depression. The heady days of dot coms and sky-high stock prices created a sense of consumer wealth rivaling any other period in our nation's history. Yet, that expansion was built as much on the easy money of low interest rates and on momentum as it was on actual value creation and it couldn't continue indefinitely. To suggest that cutting taxes had anything to do with the current recession is patently false. At a time like this, cutting taxes is one of the best things the government can do.

Democratic opposition to the tax cuts and desire to halt their implementation reflects a widespread misunderstanding of both the utility of a budget surplus and the proper role of government. In reality, the tax cuts are responsible for only a small part for the decrease in the projected budget surplus -- the rest is due both to emergency spending in the wake of September's terrorist attacks and to the slowing economy, which naturally reduces tax receipts and increases automatic "stabilizer" spending like unemployment benefits. Democrats, however, seem to view the budget surplus as sacrosanct. They would argue that the windfall of economic growth allows for greater freedom for government spending and offers the chance not to have to rein in spending, after years of facing a deficit.

But the government shouldn't have a surplus. It's not supposed to, and when it does, there's something wrong. Every dollar that the government takes is a dollar taken out of the economy. It is a dollar that will not be invested in our productive capacity. The most appropriate thing to do when the government collects more money than it needs is to give back to those who aren't so flush with cash -- namely, the American people. At a time when the economy is weak, the first priority of the government shouldn't be to line its own pockets, but to ease the burden for the American people. Cutting taxes puts money into the hands of people who are facing hard economic times.

Moreover, if the government remains steadfast in its commitment to these tax cuts, the ultimate result will increase budget surplus projections once again. Tax cuts encourage consumer spending, which is precisely what an economy such as this needs to get moving again. The government should be doing everything it can to get money into the hands of the American people so that the private sector can start paying for goods and services. Once it does, strong economic growth will buoy government tax receipts, and the shrinking surplus will become stable. During the 1980s, the last time the government cut income taxes across the board, economic growth caused tax receipts to increase tremendously.

At this point, then, halting tax cuts is the last thing the government should do. First, it's unfair to the American people. The purpose of the government isn't to get rich, but to allow its citizens to have that opportunity. If the government has collected more than it needs, giving some of that surplus back to the people who created it is its responsibility. Second, cutting taxes stimulates economic growth. This not only benefits citizens, but it also causes an increase in government tax revenues. If Daschle and Kennedy, as well others who would put the brakes on economic relief right when it is most needed, really want to help the American government, they will do so by helping its people by allowing the planned tax cuts to be implemented on schedule in their entirety.