Tax Cuts: Objections Overruled.(Brief Article)

Liberals are making three chief arguments against President Bush's tax cut: that it is unaffordable, that it is unfair, and that it would not do much to stimulate our slumping economy. The first two charges are unpersuasive, and the third, while true, points to a different conclusion from the one the liberals draw.

First, affordability. Democrats say that it's unwise to count on the projections that there will be $5.6 trillion in surplus revenues over the next ten years. The surpluses could come in much lower than that. It's true that ten-year projections are not very reliable and that small changes in the assumptions would produce very different figures. But the estimate that the tax cut would cost the federal government $1.6 trillion over ten years depends on many of the same assumptions and is equally unreliable. There are, moreover, good reasons for thinking that $5.6 trillion is a cautious, even pessimistic, estimate.

It assumes, for one thing, that the economy will grow by an average of 3.2 percent a year over the next ten years. The blue-chip economic forecasters say 3.4 percent is more likely. That may not sound like a big difference, but the blue-chip number would increase the surplus by $500 billion. In addition, the president's budget assumes that income- tax revenues will grow more slowly than the economy over the next ten years. That would be highly unusual. Revenues usually grow faster than the economy because of the progressive tax structure: Growth moves people into higher tax brackets. Adjusting this assumption could easily yield another trillion. The federal forecasters are probably underestimating capital-gains revenues by a few hundred billion dollars, too.

Is President Bush underestimating how much Congress will spend? Critics say that his proposed 4 percent increase in discretionary spending is unrealistic because it does not keep pace with inflation and population growth. But why should NASA's funding go up every time someone crosses the Rio Grande? Republican aides on the Senate Budget Committee have calculated that at least 73 percent of discretionary spending is in no way tied to population. Whether Washington can restrain its spending appetite is, of course, ultimately a political question. But as a matter of economics and accounting, Bush's budget adds up.

The fairness argument is harder to answer because it is more amorphous. Citizens for Tax Justice, a liberal group, says that 43 percent of Bush's tax cut would go to the wealthiest 1 percent of Americans. But what percentage would meet the critics' definition of "fair"? And like almost all such calculations, ...