Tax cuts won't curb spending

WASHINGTON -- At stops across the country, President Bush offers a variety of reasons for tax cuts.

It's the people's money, not the government's. They help create jobs. They can juice the stock market. They will inspire economic growth.

Another motive, meanwhile, is less mentioned but more ambitious: restraining the growth and power of the federal government by cutting its income.

As the House and Senate negotiate the final shape of the Bush administration's second major tax cut, analysts say the president is less likely to shrink government than to expand the budget deficit. Because like tax cuts, the programs that make up the bulk of the federal budget -- particularly national defense, Social Security and Medicare -- are popular with lawmakers and the public.

"I don't think he's going to succeed in the long run," said Allen Schick, professor of public policy at the University of Maryland. "Republicans are much more united on cutting taxes than they are about cutting spending."

Stimulating the economy is the aim of the current tax cut plan, White House aides said. But some added that an ancillary benefit is keeping tax revenues out of the hands of those members of Congress whom Bush likes to call "the appropriators."

"Appropriators love to appropriate here in Washington," Bush told said recently. "Given a pot of money, they will appropriate it, unless there's an administration willing to fight on behalf of the taxpayers."

Still, worry about the return of deficits caused even a few Republicans to balk at the size of the tax cut Bush proposed this year, $726 billion over 10 years. But with the Senate approving a $350 billion cut Thursday and the House wanting $550 billion, Bush is on track to sign one of the largest tax cuts in history.

And it will follow the biggest tax cut of them all, the 10-year, $1.35 trillion package Bush signed in 2001, when the budget was in surplus. Back then, White House aides argued that the surplus encouraged pork-barrel spending and that taxpayers deserved to have some of the excess money returned to them.

That tax cut, to date, has not stopped government spending, officials pointed out. They noted that Bush is willing to see this year's budget grow by up to 4 percent, with much of the new spending in continuing response to the Sept. 11 attacks.

Democrats say that the Bush tax cuts benefit mostly the wealthy and that Republican efforts to slash government spending fall most heavily on the poor and disadvantaged.

Some of the Democratic presidential candidates who want to challenge Bush have proposed repealing some or all of the cuts -- many of which don't take effect for years -- and using the revenue to finance health care and education plans. Bush supporters, meanwhile, are poised to cast these Democrats as tax raisers.

That accusation is only one of the problems the tax cuts create for Bush's opponents, analysts said. The cuts also hamper their ability to propose sweeping new programs, like a prescription drug benefit, without proposing new taxes that would make them even more vulnerable to political attack.

The political fallout of the tax cuts remains uncertain, analysts said. But the odds they may reduce the federal government's power are long, they said, because too many spending programs are deemed popular or necessary.

Bush himself envisions bigger budgets for national defense and homeland security as part of the war on terrorism, analysts said. Bush has pushed for increases in education and anti-AIDS funding, as well as his own prescription drug program.

Moreover, the federal budget is rapidly and increasingly consumed by entitlement programs -- Social Security, Medicare and Medicaid -- and the percentage will only grow as more baby boomers retire.

Some conservatives believe that growth, matched by the financial crunch, will force lawmakers to finally grapple with the coming financial crises of Social Security and Medicare.

The Bush administration has pitched controversial new plans, one to allow Social Security recipients to invest funds in private accounts. Another would encourage Medicare recipients to join health maintenance organizations in exchange for help with prescription drug prices.

Some analysts questioned whether deficits could achieve these changes. For one thing, they said, the Social Security proposal carries high transition costs. Then there are the sheer political difficulties of changing -- and reducing -- benefits that have been promised to taxpayers.

"The problem is you've already made commitments to people who receive Social Security, Medicare, and in some cases Medicaid," said Thomas Mann, senior fellow in governance studies at The Brookings Institution, a think tank.

That could mean long-running deficits would force the government to borrow money to pay bondholders, analysts said, probably driving up interests, dampening the confidence of financial markets and slowing the economy.

"It can very easily turn into a downward spiral," said Norman Ornstein, resident scholar at the American Enterprise Institute.

Critics of the president's tax cuts also raised moral objections.

"What we are effectively doing is passing the tab onto our children, the tab for the war and the tab for the tax cut we're doing now," said Rep. John Spratt, D-S.C., the ranking Democrat on the House Budget Committee.

Spratt said the desire to slash government is only part of the GOP's goal, attributing the tax cuts more to the desire to benefit wealthy contributors.

Grover Norquist, a leading anti-tax advocate, said Bush's pursuit of cuts has many supporters with many agendas, including the desire to rein in the federal government.

"If it's a big enough coalition, you can have a lot of reasons for doing things," said Norquist, president of the Washington-based Americans For Tax Reform.

Many analysts have seen this movie before. When President Ronald Reagan won his major tax cut package in 1981, critics such as Sen. Daniel Patrick Moynihan, D-N.Y., accused him of seeking to shrink the federal government by cutting off its financial air supply. Instead, the federal budget deficit soared.

President Clinton's 1993 package of tax increases, combined with the record economic growth of the 1990s, led to budget surpluses by the end of that decade. Democrats said Bush's 2001 tax cut helped wipe out those surpluses in less than two years, but Republicans blame the bursting of the dot.com bubble, the Sept. 11 attacks, the economic downturn and the war on terrorism -- and federal spending. And like the "supply side" economists who came to power with Reagan, Bush has said lower taxes could generate more revenue because of increased economic growth.

"If we hold down spending, the way to deal with the deficit is to encourage revenue growth in the Treasury," Bush said in New Mexico. "And the way to encourage growth is to stimulate this economy."

If that theory holds up -- and many economists doubt it -- the theoretical budget surpluses would presumably hurt GOP efforts to restrict spending. But some Bush aides said they do not expect the pending tax cut to be the last one proposed by this administration.

Some analysts said the experience of the '80s belie Bush's hopes that lower taxes will create less government.

"His successors will have to clean up the mess he leaves behind fiscally," Mann said.

And at some point, analysts said, some president -- perhaps Bush in a second term, perhaps a successor -- will have to break down and raise taxes again.

Said Schick: "Tax cuts and tax increases come around and go around."

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