Time to Make the Bush Tax Cuts Permanent

Donald Lambro

3/17/2006 8:39:45 AM - Donald Lambro

WASHINGTON -- President Bush has not received enough credit for one very important policy reform: the nearly $2 trillion in tax cuts he pushed through Congress in his first term.

It remains the centerpiece of Bush's domestic agenda and puts him in a league with Ronald Reagan, but, for some reason, his conservative critics tend to forget this when they begin carping and complaining about his fiscal record.

A bunch of them got together here the other day for a forum at the Cato Institute and launched an attack on everything they thought Bush had done wrong, charging he was not a conservative and had betrayed Republican fiscal principles.

I, too, have been critical of excessive spending, particularly the billions in pork-barrel expenditures. But I think Bush's $2 trillion in tax cuts over a 10-year period has to be factored into the spending equation, something his critics refuse to do.

There are several methods to curb the size and growth of government. Reining in spending bills is one way, but it is the most difficult to do politically, as we have found out over many decades of trying. It is a never-ending political battle that has to be fought and re-fought each year, often without much success.

Another way is to reduce the amount of money we give Congress to spend by cutting taxes, leaving a larger amount of the nation's income in the economy for savings, investment, consumption and growth.

I maintain that tax cuts, or a portion of them, are spending cuts, too. If Bush had not proposed and the Republican Congress not passed the tax cuts of 2001 and 2003, that money most assuredly would have been spent and squandered by our lawmakers.

But the spending spigot is endangered of being turned on full force if we let these tax cuts expire, as they are scheduled to do in 2011.

Bush is pushing hard to extend the reduced tax rates on capital gains and stock dividends (both cut to 15 percent), plus the reforms in the alternative minimum tax -- which was originally aimed at people who paid no taxes but is now increasingly hitting middle-income Americans. A bill to keep those rates in place is in a House-Senate conference, and it stands a good chance of passage this year.

But the big enchilada is the individual income-tax rates passed in 2001 that will revert back to their higher rates in 2011, effectively raising taxes on every American worker. Bush will be out of office at that time and his successor will have to deal with it, unless Bush can force an extension of these and other cuts before he leaves office.

These tax rates, pegged to various income brackets, are now set at 10 percent, 15 percent, 25 percent, 28 percent, 33 percent and 35 percent. If they expire, they will revert back to the higher Clinton tax rates of 15 percent, 28 percent, 31 percent, 36 percent and 39.6 percent.

Bush's new 10 percent tax targets the lowest-income bracket in America. It applies to the first $7,550 of income for individuals and the first $15,100 for couples. If it expires with the rest of the lower Bush rates, the people who would be hit hardest would be those on the lower end of the income scale and the middle class.

Other tax cuts will be eliminated in 2011. For example, the marriage-penalty changes that protected two-earner married couples from having to pay more on their income than if they had filed as individuals. The $1,000 child tax credit would drop to $500. The death tax on one's estate would see its 45 percent tax rate in 2007 and higher $3.5 million exemption in 2009 revert back to a top rate of 60 percent on a $1 million exemption.

Bush would like to see the lower rates made permanent before he leaves office as a lasting legacy of his presidency. But there are many lawmakers, including Republicans, who fear that increased tax revenues are needed at a time of rising deficits.

In fact, just the opposite is needed to bring the deficits down.

About a year ago, the U.S. Treasury took in $100 billion more than expected, owing to much stronger economic growth than anyone had forecast.

Revenues could be larger still this year, taking another big bite out of the deficits, if the Bush tax cuts are made permanent -- giving the economy the booster shot it needs to climb to the next plateau.

The lesson of the last five years is simply this: Lower tax rates produce more government revenue, which reduces the budget deficits. Higher job-killing tax rates will only worsen them.