A Nemesis No More, Deficit Rising ; President Bush's Push for Tax Cuts, despite a Rise in the Federal Deficit, Signals a Return to Supply-Side Economics

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President Bush's latest push to reduce taxes reflects a Republican approach to managing the economy that echoes Ronald Reagan more than his father: Stimulate the economy first and deficits will take care of themselves later.

Indeed, the idea of balancing the federal budget may today be farther down the list of Washington's priorities than at any time in 20 years.

In part this is due to the nation's circumstances. Terrorism, not red ink, appears the biggest threat to US security. Few experts judge that current deficits pose much of an economic threat.

But a marked decline in the 1990s political consensus on the need for austerity has also played a role. Mr. Bush is advocating tax cuts to fix the economy, while Democrats appear divided and unwilling to position themselves as the party of fiscal prudence.

"Once you have a legitimate reason to [unbalance the budget] it becomes very easy to lose fiscal discipline altogether," says Robert Bixby, head of the Concord Coalition, a group that promotes a balanced budget.

It has become incresingly clear in recent days that on money matters George W. Bush is literally not his father's kind of Republican. The elder Bush once denounced Reagan-style fiscal policies as "voodoo economics." Given a choice between raising taxes or allowing the deficit to increase during his own presidency, he chose the former.

But earlier this month, his son espoused one of the central premises of Reagan's supply-side economics: that tax cuts actually increase government revenue, by stimulating the economy.

Asked about this year's deficit of $159 billion after a Cabinet meeting, Bush insisted that his big tax cut of last year was not responsible for the red ink.

"The deficit would have been bigger without the tax-relief package," he said.

The administration is pushing to make permanent those aspects of its tax package which are set to expire. Its solution to the stumbling economy is in part a new package of tax cuts, perhaps to include a reduction in the corporate income tax rate. Treasury Secretary Paul O'Neill has even put together an internal group to mull major tax-code revisions.

Contrast this behavior with that of former GOP presidential nominee Bob Dole. As a Senator Dole was once denounced by a member of his own party, Rep. Newt Gingrich, as a "tax collector for the welfare state" for suggesting increased revenue enhancements.

Congressional Democrats, for their part, are quick to blame tax cuts as a major reason for the current run of red ink. But few are willing to call directly for tax-cut repeal. And in the meantime, many in the party are busy promoting more spending on prescription drugs for the elderly and other social programs. …


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