Examine That 'Jewel'
NEWT GINGRICH calls it the ''crown jewel'' of the Contract With America, but the $189 billion tax cut proposed by House Republicans could turn out to be a rhinestone -- or millstone -- if it undermines efforts to balance the federal budget.
By some estimates, passage of a tax cut on the order contemplated in the Contract will cost the federal Treasury more than $600 billion over the next decade. Paying for that will require spending reductions that dwarf what Congress has done so far.
Some Republican ''deficit hawks'' in the House are willing to back the tax cut only if it includes a provision making it void unless Congress enacts measures to ensure a balanced budget by 2002. A larger group says it will go for the cut only if the biggest reduction in the package -- a $500 per child tax credit -- is restricted to families with yearly incomes of less than $95,000. The plan puts the ceiling for the credit at $200,000. Some kind of compromise will probably be tacked onto the bill in the House.
In the Senate, tax cuts are being considered with a bit more favor compared with a week ago. Appropriations Committee chair Sen. Bob Packwood (R) of Oregon, for example, has tempered his skepticism, saying he's open to the idea if it's tied to plans to balance the budget seven years out.
What's driving the push toward tax cuts this time around is more plain old politics than esoteric economic theory. No one is arguing very hard for supply-side economic stimulus -- especially at a time when the Federal Reserve is trying to cool the economy.
The Contract has elevated political promises to the level of binding obligation. It's designed to erase all memory of George Bush's broken ''read my lips'' pledge. In this political sense, tax cuts are indeed the ''crown jewel.''
But does the wide middle swath of Americans care that much about a tax cut right now? Surveys have indicated that twice as many people feel savings from spending reductions should go toward shrinking the deficit as toward paying for a tax cut. Still, the political wisdom is that a drop in taxes has much more appeal than the drawn-out process of reducing red ink.
People concerned about the burden that mounting deficits may put on their children and grandchildren could prove that wisdom wrong. They'd rather not see the move toward more efficient, responsive government short-circuited by the old habit of seeking votes with tax cuts.