While Donald Rumsfeld talks about Old Europe and New Europe,
here in Washington, on Capitol Hill, we have Old Congress and New
Congress when it comes to the budget and President Bush’s tax
proposals.
Old Congress is comprised mostly of Democrats, but there are
some Republicans in its ranks. They have become so inured to a
concept called “static scoring” of budgets that they cannot see
beyond the current fiscal year. “Scoring” refers to the budget
items projections submitted by the White House to Congress. For
many years “static scoring” has been embedded in the system. It
works this way: If the president proposes $1 of tax cuts, that
dollar is assumed to be lost to federal revenue forever. This is
based on the quaint notion that when taxpayers get to keep a little
more of their money as a result of tax cuts, they will stuff the
money under a mattress; out of circulation, more-or-less
forever.
The real world does not work that way. The history of the 20th
Century shows that across-the-board tax cuts generate new economic
activity and, in due course, result in more — not less — revenue
to the Treasury. This was true of the Coolidge tax cuts in the
Twenties, the Kennedy tax cuts in the Sixties and the Reagan tax
cuts in the Eighties.
Old Congress Democrats in particular like static scoring for it
makes tax cuts look scary and permits them to say, “We can’t afford
it.” They also use the old chestnut that it will benefit “the
rich.” In 2000 the top 25% of taxpayers paid 84% of the taxes (and
the top one percent paid 37.4%). These people, if they get their
share of across-the-board tax cuts, are also the ones who will
invest, making more capital available for businesses to use for
growth, creating jobs. Conversely, nearly 40 million Americans pay
no income taxes. How can the government give income tax
relief to people who pay none?
All of that logic does not dent Old Congress thinking, for the
Democrats, even when they are in the minority in Congress, are
still the party of government. They prefer government solutions to
nearly all problems and are very resistant to tax cuts of any kind.
They consider the aggregate income of the people as the
government’s money, except that which the government decides to let
people keep.
Despite the resistance of Old Congress, New Congress leaders are
pushing for “dynamic scoring” to take into account the economic
activity that would be generated by tax cuts. California Republican
Bill Thomas, chairman of the House Ways and Means Committee, has
put in place a House rule requiring the Joint Committee on Taxation
(a House-Senate group) to put dynamic scoring projections alongside
the traditional static ones on each new tax-cutting measure to be
considered.
Meanwhile, House Budget Committee Chairman Jim Nussle of Iowa
has nominated a dynamic-scoring advocate to head the Congressional
Budget Office, replacing the retiring director who opposed dynamic
scoring.
Back in 1981, when President Reagan proposed his sweeping
across-the-board tax cut program, his administration used only
static scoring; hence, a projected net loss of revenue. Within 15
months of its enactment, however, the nation had entered into what
became it largest, longest economic expansion up to that time.
Wrapped up in arguments over budget projections is the deficit
debate. Old Congress Democrats (aided by the media imperative for
drama and oversimplification) have engaged in much hand-wringing
over what they call “a record” deficit. The dollar figure, however,
is not the one to watch (in any case, because of static scoring, it
is almost certainly overestimated). The key figure is the deficit
as a percentage of Gross Domestic Product. It is projected to be
2.7% at most.
Historically, for many years under Democratic Congresses and
several Democrat administrations, we managed annual deficits in the
2-3% range without difficulty. Republicans, impotent, ranted. Now
Old Congress Democrats rant. Robert Rubin, former Clinton
Administration treasury secretary, has contended that the deficit
will cause the government to crowd private borrowers out of the
capital market. That would be true after a point, say deficits well
above 3%, but not under present circumstances. Indeed, interest
rates remain low and much capital goes begging these days.
Old Congress Democrats rant partly because they don’t control
things and have no alternative plans to offer. There is another
reason they don’t like budget deficits: It puts a lid on federal
spending. New Congress Republicans can say, “We can’t afford it,”
and who can say nay?
