THE HOUSE REPUBLICAN TAX BILL:
COMMENTS FROM EDITORIAL BOARDS, ECONOMISTS, REPUBLICANS & OTHERS
July 23, 1999
RECENTLY, A LARGE NUMBER OF ECONOMISTS, LEADING EDITORIAL PAGES, ANDEVEN REPUBLICAN MEMBERS OF CONGRESS HAVE EXPRESSED SERIOUS CONCERNSABOUT THE REPUBLICAN TAX CUT BILL.
ECONOMISTS AND OPINION LEADERS
Fifty leading economists, including six Nobel laureates, said in a
letter on July 21, 1999 that big tax cuts were bad economic policy. The
letter stated, "In contrast, a massive tax cut that encourages
consumption would not be good economic policy. With the unemployment
rate at its lowest point in a generation, now is the wrong time to
stimulate the economy through tax cuts. Moreover, an ever growing tax
cut would drain government resources just when the aging of the
population starts to put substantial stress on Social Security and
Medicare. Further, the projections assume substantial undesirable
reductions in real spending for non-entitlement programs, including
important public investments. Given the uncertainty of long-term budget
projections, committing a large tax cut would create significant risks
to the budget and the economy."
Alan Greenspan, Chairman of the Federal Reserve Board, told the House
Banking Committee on July 22, 1999, "I remain where I was last time I
was here and the time before. I think that the reduction that is
occurring in the Federal debt at this stage as a consequence of the
ongoing surplus is an extraordinarily effective force for good in this
economy. I think it has moved interest rates lower than they otherwise
would have been. I think the cost of capital is lower. And for a number
of other reasons, I think it has been a major factor in expansion of
Greenspan added, "As I have said before I would therefore prefer,
because we are being confronted with a very large demographic change
down the road which means the ratio of retirees to workers is going to
go up very dramatically, that our emphasis needs to be on national
savings which creates capital investment which creates increasing
productivity and therefore the capacity when finally the baby boomers
retire, that their standard of living will be kept high without
creating problems in growing standards of living for our working
population. Therefore as I have said, my first priority, if I were
given such a priority, is to let the surpluses run. ''
(Humphrey-Hawkins Testimony of Chairman Greenspan, Before the House
Banking Committee, July 22, 1999).
Robert D. Reischauer, a senior fellow at the Brookings Institute,
stated in his July 12, 1999, Center on Budget and Policy Priorities
Briefing: "were there to be a tax cut, even of the House of
Representatives proportions, $800-and-something over ten years, the
amount of relief that would actually be distributed in the next year or
so would be pretty modest. And so, the impact on the economy would be
really quite small but inevitably in the wrong direction to the extent
that it stimulated consumption and therefore boosted aggregate demand in
an economy that is already straining against its capacity limits."
Former U.S. Senators Sam Nunn (D-Ga.) and Warren Rudman (R-NH) stated
in their July 12, 1999 op-ed in The Washington Post,: "If spending is
increased or taxes are cut based on the expectation of huge surpluses
and the projection turns out to be wrong, deficits easily could reappear
where surpluses are now forecast."
Edward Gramlich, a member of the Federal Reserve Board of Governors,
told The New York Times (Louis Uchitelle, The New York Times, July 14,
1999.) " If taxes were cut while the nation's resources are highly
employed, that would put more pressure on monetary policy." The New York
Times added, "He suggested, in effect, that the Fed might have to raise
interest rates to prevent the extra spending that would over stimulate
the economy. Others worried that the higher rates might reduce
investment or bring down inflated stock prices, damaging the economy
through these avenues."
(ECONOMISTS & OPINION LEADERS CONT.)
Alan Blinder, a Princeton University Economist who served as Fed vice
chairman from 1994 to 1996 said a tax cut offset by higher interest
rates today "would reverse the policy mix that we have followed in the
1990s with such splended effect: low interest rates and high corporate
Sandra Shaber, an economist at the WEFA Group in Philadelphia, told
USA Today (Owen Ullman, July 13, 1999) that "Tax cuts would be a good
idea if the economy were to slow significantly. But things look like
they're going pretty well."
Iris Lav of the Centre on Budget and Policy Priorities told the
Economist (July 17, 1999) that the annual cost of the Archer plan jumps
from $152 billion in 2008 to $203 billion in 2009; thereafter the costs
"explode" to $2.8 trillion between 2010 and 2019, "at the same period of
time when the baby-boom generation will begin to retire and non-Social
Security surpluses are expected to level off and ultimately to decline."
Joel Slemrod, director of the Office of Tax Policy Research at the
University of Michigan, was quoted in The New York Times (Michael
Weinstein, July 15, 1999), as saying the "idea of cutting capital gains
tax to move the economy significantly is implausibe" The amount of taxes
involved which in typical years hovers between $20 billion and $50
billion, "is too small to shift an $8 trillion economy"
MANY LEADING NEWSPAPERS IN THEIR EDITORIAL PAGES OR IN NEW ANALYSIS HAVEEXPRESSED CONCERNS REGARDING THE REPUBLICAN TAX PLAN.
The New York Times (July 22, 1999) said of the Republican tax cuts:
"The biggest damage to Federal revenues would come just as the baby
boomers begin to retire, driving up the costs of Social Security and
Medicare. To make the numbers work, the House Republicans are using rosy
forecasts of a continued strong economy and unrealistic assumptions
about the level of spending cuts that they are likely to make. We hope
the economic predictions prove accurate, but there is a good chance they
The Washington Post (July 23, 1999) criticized the Republican tax cut:
"The true cost of the tax cuts in the Republicans' bills would also be
much greater than the surplus. The bills were carefully written in such
a way as to mask their cost by delaying the full effect."
The Wall Street Journal (Gregg Hitt, July 16, 1999) in news analysis
called the House bill "a budget buster built around a 10% cut in each of
five individual income-tax brackets" While spreading tax benefits to
almost every GOP constituency, it soaks up most of the projected
surplus, excluding Social Security" fiscal conservatives in both parties
wring their hands over whether the huge tax cut envisioned by GOP
leaders will crimp the Treasury's ability to reduce the federal debt.
It could also pose a long-term threat to Social Security."
USAToday (July 23, 1999) stated in an editorial entitled "Tax Cut May
Look Appetizing, But It's Loaded With Hidden Costs." "The latest poster
child for political excess is the whopping $792 billion, 10-year tax cut
passed by House Republicans. It has something for almost everyone a -
10% reduction in income tax rates. But no matter what you may think of
the package, it is built on fanciful accounting."
SEVERAL HOUSE REPUBLICANS VOTED AGAINST THE HOUSE REPUBLICAN TAX BILL.
Rep. Michael Castle (R-NY): "To have no latitude whatsoever, I think,
is an error. We need to have a smaller tax cut."[Associated Press
Castle also said, "We already have a very large tax cut?We're
struggling to increase all our appropriations bills for education,
health, the welfare of the country. ... My own personal vote is we
should not increase the tax cut at al." [Associated Press, 7/1/99]
Rep. Connie Morella (R-MD): "I want debt retirement and [putting money
into] Medicare and Social Security. I think the tax bill will be better
coming next session, after proving what we can do with the budget."[The
Washington Times, 7/22/99]
Rep. Greg Ganske (R-IA): "I cannot support an $870 billion tax
cut...I think it would be much more reasonable for us to sit down, reach
across the aisle, reach down Pennsylvania Avenue, and come to an
agreement."[The Wall Street Journal, 7/15/99]
Ganske, criticizing the Republican tax cut tactics, also said, "They
just figured they could bulldoze everyone, twist arms and break off
legs. Do my Republican colleagues want to see a campaign ad of Bill
Gates and the billions and billions of dollars he is saving from this?"
[The Wall Street Journal, 7/22/99]
SEVERAL ECONOMIC OPINION MAKERS HAVE SPOKEN OUT AGAINST THE REPUBLICAN"GIMMICK" AS IT WAS TERMED BY AN ANONYOMOUS GOP CONGRESSMAN THATPERSUADED SOME MODERATE HOUSE REPUBLICANS TO SUPPORT THE TAX BILL
Robert D. Reischauer, a budget expert and former CBO director was
quoted in The Washington Post (Eric Pianin, July 23, 1999) saying
yesterday that the compromise measure "appears to provide some modest
safety valve, but I wouldn't bet a nickel on its effectiveness."
Reischauer told The New York Times (David Rosenbaum, 7/23/99) that "It
doesn't make a whole lot of sense."
Stephen Entin, an economist at the Institute for Research on the
Economics of Taxation, who was a Treasury official during the Reagan
Administration and is a devotee of deep tax reductions, said of the
Republicans new tax cut measure: "It's just a dumb idea" [The New York
A Senior Republican Congressman, who spoke on the condition of
anonymity, told The New York Times that "It was a gimmick, a smear of
grease to get us past a sticky spot last night." [The New York Times,