Are tax cuts a priority

Posted: Dec 19, 2002 12:00 AM
Last week, there was a minor tempest in a teapot in Republican circles. A group of tax-cutters led by Steve Moore of the Club for Growth tried to torpedo the appointment of former Goldman Sachs executive Stephen Friedman as director of the White House's National Economic Council. Despite the anti-Friedman campaign, however, President Bush made the appointment on Thursday. The case against Friedman rested mainly on his affiliation and support for the Concord Coalition. This group has been around for some years, lobbying for fiscal responsibility. While there is nothing objectionable about that, in practice the coalition has been much stronger in its denunciation of tax cuts than spending increases. Indeed, one almost never hears anything about the group except when it attacks Republicans for wanting to cut taxes. To people like Moore, Friedman's affiliation with the Concord Coalition sent an ominous signal that President Bush was appointing a fox to guard the henhouse. They feared that Friedman would become some sort of anti-tax-cut mole inside the White House, undermining the president's tax plans from within. The Moore group saw Friedman as the reincarnation of Richard Darman. Conservatives have long believed that Darman undermined President Reagan's tax-cutting efforts while serving as deputy chief of staff in the Reagan White House. Later, as director of the Office of Management and Budget, he effectively destroyed President George H.W. Bush's re-election effort by talking him into supporting a politically disastrous tax increase in 1990. Although he shares his father's name and half his genes, I think that the current President Bush is not the sort to be talked into anything he doesn't want to do. He is not going to make his father's mistake. So why did President Bush appoint someone obsessed with balancing the budget as a key economic adviser? Does this send a signal that he is backing down on plans for another tax cut next year? The short answer is "no." All indications are that President Bush has signed off on the outlines of a $300 billion tax cut next year. Details are expected shortly after Jan. 1. Therefore, Friedman is not being brought into the White House to develop a tax plan or debate the merits of one. Rather, he is being brought on board to sell a tax plan the president is already committed to. So why bring in a tax-cut critic to sell a tax cut? The answer is that with the federal budget already in deficit, getting another big tax cut through Congress will be a tough sell, even with a slow economy. The main attack will in fact come from Friedman's old pals at the Concord Coalition and others like them. They will say that deficit reduction is more important than tax cuts and better for the economy. And many on the Republican side of the aisle will agree with them. Given the thin Republican majorities in the House and Senate, and the certainty of overwhelming Democratic opposition, Bush cannot afford to lose a single Republican vote. One can therefore argue that Friedman is uniquely qualified to calm the fears of the nervous nellies who worry so about the budget deficit. He is one of them, speaks their language and has credibility with them. Thus he may be more successful in corralling votes from the balanced budget-types than a died-in-the-wool tax-cutter like Larry Lindsey, whom Friedman is replacing. Furthermore, as a Wall Street veteran, Friedman will be an important emissary to the bond traders who lie awake at nights worrying about yield curves, the money supply, Congressional Budget Office forecasts and other such minutia. Again, he is one of them and will be far better at convincing markets not to be overly concerned about a larger deficit, when slow growth is a much bigger problem. I have no idea whether Friedman will in fact turn out to be a good salesman. But I am certain that he has not joined the White House staff to argue with Bush about matters the president has already made up his mind about. After all, if Bush was willing to dismiss Lindsey, one of his most loyal staffers, just for being a poor salesman, then I don't think that Bush will hesitate for more than a moment to get rid of Friedman if he feels that he is not with the program.