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Fiscal Death by 1,000 Tax Cuts

May 23, 2003|Gene Sperling

During my years in the Clinton West Wing, there were bowls of M&M's everywhere. Early on, I calculated that 10 M&M's contained only 44 calories and cleverly concluded that, as such, a handful could never be consequential to my weight.

The flaw in my thinking, of course, was that no matter how many M&M's I consumed, I could always convince myself that the next handful was such a moderate, incremental addition to my caloric intake that it would never make a difference. The result was a succession of painful diets.

I now fear that my twisted M&M's logic has found its way into the Bush administration's fiscal policy.

Every time the administration faces charges that its tax-cut policy is leading to a dramatic deterioration of our fiscal future, the White House plays games to convince the public, and perhaps itself, that the cuts and their long-term effects are smaller than they actually are.

First, the administration has carefully presented each set of tax cuts individually, like individual handfuls of M&M's. Administration spokespersons assure us that the specific tax cut at issue is only "moderate." But adding them all up tells a different story.

The 2001 tax cuts -- including interest costs on the additional debt they entail -- will cost at least $2.6 trillion through 2013. And that number climbs to $3.2 trillion after the alternative minimum tax is modified to ensure that all Americans are receiving their promised tax cuts. Now add the full costs of the administration's new proposals to exclude taxation on dividends and add or extend even more new tax cuts and, presto, we are looking at a combined tax cut of more than $4 trillion through 2013.

Second, the administration continually relies on gimmicks and maneuvers to hide the true long-term cost of each handful from the public. Its favorite gimmick seems to be the Cinderella tax cut, whereby the administration pretends that the 10-year cost of the cuts will be less because the cuts will last only several years.

These "moderate" cost estimates rely on the political fairy tale in which Congress and the administration easily allow current taxes to revert back to their previous higher levels -- like Cinderella at midnight.

The cynicism is staggering. In 2001, the Bush administration hardly blinked between first proposing that its tax cuts be slowly phased in and allowed to expire and then calling for those very tax cuts to be accelerated and made permanent.

Now the administration is playing the same game again. To make the cost of its new tax-cut package look moderate, it is supporting proposals to reduce or eliminate the taxation on dividends for several years and then have the tax suddenly kick in again.

Here's a safe bet: If a variation of this proposal becomes law, the Bush administration will soon call for making the dividend cut more robust and permanent, and anyone who disagrees will be accused of raising taxes and trying to rattle the stock market.

Third, the administration pretends that our deficit problem is only a temporary phenomenon because of war and recession, in order to distract the public from the fact that the tax cuts -- made permanent -- are digging a huge deficit hole for perhaps decades to come.

The fact is that the true costs of the tax cuts over the next several decades is more than three times what would be needed to make Social Security safe and solvent for the next 75 years.

By pretending that we are dealing with only moderate tax cuts, the administration is hiding from the public the dramatic consequences of its tax-cutting agenda for our nation's ability to respond to serious long-term challenges.

If the administration really believes that the continual passage of long-term tax cuts is worth trading away the resources needed to address Social Security, Medicare and other challenges, then it should have the courage to admit the true size and scope of the cuts.

Pretending that what is at stake are only tax cuts with little effect on our long-term savings is about as helpful to our nation as it is to assure a dieter that modest handfuls of M&M's will never affect his weight.

Gene Sperling was national economic advisor to President Clinton.

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