Financial test

Jacob Sullum
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Posted: Nov 05, 2004 12:00 AM

"Are you trying to help or hinder the re-election of President Bush?" a reader asked me in an e-mail message a couple of months ago. "While your points are valid, unless you want Kerry elected, refrain from aiding Kerry's campaign! . . . Save all the criticism of [Bush] for Nov. 3!"

 This message reflects the gist of the complaints that I received from Republicans whenever I criticized the president for betraying conservative principles. They usually did not say I was wrong; instead, they said that, bad as Bush's performance had been from a limited-government perspective, Kerry would be worse, so I should keep my mouth shut until after the election.

 The strategy of refraining from criticism of Bush when it was most likely to be effective -- during an election campaign in which his victory depended upon his ability to motivate his conservative base -- never made much sense to me. I suppose the hope was that, once he was re-elected, the president could afford to take the politically unpopular steps that will be necessary to put the nation's fiscal house in order.

 Now that Bush has won a second term by a comfortable margin and his party has strengthened its control of both the House and the Senate, the conservatives who have been holding their tongues presumably will press him to deliver on his promises. Here are three important ones:

  Spending restraint. Bush repeatedly has vowed to cut the budget deficit, about $422 billion in 2004, in half by 2009. A recent analysis by the Congressional Budget Office indicates he won't come close. Yet it would be nice to see the president get some use out of his veto power, which is still in its original packaging.
 
The challenge of cutting the deficit over the short term pales in comparison to the fiscal crises facing Social Security and Medicare as the baby boomers retire. The long-term shortfalls of these two programs total $74 trillion -- more than six times the U.S. GDP -- with Medicare accounting for more than four-fifths of that.
 
Bush only made the problem worse by tacking on a Medicare drug benefit that will cost more than half a trillion dollars in its first decade and something like $2 trillion in its second. On the brighter side, the same legislation included health savings accounts, which point toward the only feasible way to bridge the enormous gap between Medicare's commitments and its resources: greater individual responsibility.

  Social Security reform. Speaking of individual responsibility, the president calls "strengthening Social Security" a "vital issue in my second term." The strengthening is supposed to come from allowing workers to divert part of their payroll taxes to private investment accounts, which would generate returns that eventually would allow the government to reduce its benefit payments.

 Over the short term, however, this partial privatization would create a shortfall, since taxes on current workers pay for the benefits of current retirees. In his third debate with Kerry, Bush acknowledged that "we're of course going to have to consider the costs," while insisting that "the cost of doing nothing" would be greater. He's right, but following through on the policy implications will take more political courage than he so far has demonstrated on the domestic front.

  Tax reform. When the Bush administration was faulted for failing to include expected changes in the alternative minimum tax in its fiscal projections, White House budget director Joshua Bolten said "we will be focusing on fundamental tax reform" instead of tinkering with the current system. Bush, who lists tax reform high on his agenda, plans to appoint a bipartisan panel to consider alternatives, which Treasury Secretary John Snow says will include replacing the income tax with a sales tax or value-added tax.

 Drastic action is appropriate. The 10,000-page income tax code is a standing invitation to special favors and social engineering; it is inefficient, burdensome (with estimated compliance costs of about $200 billion a year), and so mind-bogglingly complex that it mocks the rule of law. But so many people have a stake in the current system that it would be surprising if the president's tax reform initiative moved beyond the study phase.

 All three of these goals are among the Bush administration's self-identified top priorities, and all three are ostensibly supported by Republican leaders in Congress. Progress toward them during the next four years will reveal whether the Republicans' avowed principles amount to anything in practice.