Barely a week into George W. Bush's presidency, his tax cut seems almost inevitable. The Democrats appear set to repeat their sordid performance of 20 years ago--when, instead of resisting Ronald Reagan's tax cut, they larded it with special-interest subsidies of their own. The size of the tax cut acceptable to Democrats edges up almost daily, from $500 billion to (as we go to press) $850 billion. Republicans, meanwhile, have begun predicting that the eventual tax cut might end up even larger than Bush's bloated proposal. " The chances of a tax-cut feeding frenzy," crows Lawrence Kudlow, a Bush adviser, "are growing daily." It's disturbing enough that fiscal policy is in the hands of people who use the phrase "feeding frenzy" to describe a process they see as beneficial. What's more disturbing is that Kudlow's prediction could be right.
We've come a long way in the last month--in exactly the wrong direction. When the Supreme Court made Bush president, it was widely assumed he would have to govern as a moderate, which would mean, at the very least, scaling back his enormous tax cut. The voting public, after all, had evinced no enthusiasm for it whatsoever. Al Gore had won the popular vote in part by hammering the tax cut as an irresponsible sop to the wealthy. Even before that, in the Republican primary, John McCain had condemned the Bush cut on similar grounds. GOP congressional candidates ran away from Bush's plan. Poll after poll showed tax cuts far down the list of public priorities.
There are several explanations for why the ground has shifted so quickly-- and none of them makes fiscal or moral sense. First, Bush seized upon the slowing economy to justify his tax cut. But most economists (including those who work for Bush) say that it can't be implemented fast enough to have an impact and that business-cycle management should be left to the Federal Reserve. Then Fed Chairman Alan Greenspan gave his blessing, disheartening Democrats who shared his now-abandoned emphasis on debt reduction.
Greenspan's endorsement carried such political weight in part because he had spent the previous eight years urging fiscal restraint. And so his dramatic turnabout is taken as evidence that the budgetary outlook must have changed dramatically. In fact, surplus projections have not changed much since the last time Greenspan spoke. What has changed is the administration. During the Clinton era, the right-leaning Greenspan was afraid of spending hikes--a prospect he helped ward off with his advocacy of debt reduction. Now, with a Republican in the White House, he no longer needs to use fiscal conservatism as an argument against spending increases and can feel free to push for tax cuts.
Meanwhile, a stream of ever more optimistic budget-surplus projections has anesthetized deficit hawks, creating an expectation that federal revenues will expand forever, permanently obviating the need for painful trade-offs. And it is true that the budget has produced pleasant surprises for several years running. But the proper lesson to take from this is not that budget projections are always too conservative--indeed, historically they've usually erred on the side of optimism--but that they're not very accurate. The further into the future the number-crunchers gaze, the hazier their vision gets. Moreover, even if today's rosy forecasts do come to pass, the picture will almost certainly darken in ten years or so, when the baby-boomers' retirement begins to soak up a larger share of the budget. At that point, if Bush has blown the surplus on tax cuts, the government will plunge back into the deficit-ridden fiscal paralysis from which it has only recently escaped.
Given this prospect, the Democrats' acquiescence to the Bush tax cut is baffling. Their surrender to Reagan at least occurred at the apogee of a decade-long revolt against government. Today, no such hostility exists. The mania for large, upper-bracket tax cuts is largely a product of the Beltway echo chamber. In a recent national opinion poll on how best to direct the surplus, tax cuts came in dead last--behind social spending, shoring up Social Security, and debt reduction. Acceding to bad policy in the face of strong public sentiment--as the Democrats did in 1981--may be cowardly. But doing so in the absence of public pressure is just plain pathetic.
Jonathan Chait is a senior editor at The New Republic.