A potentially growing federal surplus would give President-elect George Bush room to enact the 10-year, $1.3 trillion tax cut on which he campaigned, especially if he is willing to put off plans for the partial privatization of Social Security. But how he passes such a tax cut – with or over the objections of congressional Democrats – will set a tone for his administration and shape the next campaign fight.
Whether the Congressional Budget Office is right that economic growth in the next decade may be as much as 25 percent greater than thought last fall, resulting in $1 trillion in additional surplus over that time, the president-elect has as much a political problem as a monetary one. Democrats don’t like some of the tax cuts – which include reducing high marginal rates, eliminating the estate tax, reducing the marriage tax and expanding child credit, charitable deductions and Education Savings Accounts – partly because they disagree with where tax breaks should go and partly because they will fight against giving the new president an early success.
Though Republicans control the House and, barely, the Senate, it isn’t clear that Mr. Bush can count on all Republicans to support the entire tax package or that Senate Democrats will stay away from the procedures that could tie up a vote for months. That suggests taking the tax cuts one at a time rather than all at once.
House Speaker Dennis Hastert had the best reason for introducing the tax-cut plan in pieces. He pointed out that a single package tends to put the focus on the dollar figure of the proposal, where smaller bills keep the focus on the issues up for the tax break. The estate and marriage tax breaks, he noted, already have bipartisan support and could be passed without a major fight.
That is sound reasoning, and the incremental approach would give the new administration more time to get a sense of Congress as well as line up supporters. Given the current uncertainty over how much the economy will slow down and what that will do to government revenues, being cautious is of further benefit. The public has told pollsters repeatedly that paying down the national debt is more important to them than tax breaks, a preference the new president undoubtedly understands.
A series of tax-cut proposals, with bipartisan support, could start the Bush administration on the right path to closing the divide Mr. Bush spoke of during the campaign. It would also show fiscal prudence at a time when it is needed.