Daschle's Speech, Fiscal Responsibility and Tax Cuts

Senate Majority Leader outlined the country's urgent domestic and military priorities and compared the pre-tax cut possibilities for domestic investment with the current post-tax cut reality's "unnecessary fiscal bind," but he did not directly call for a delay in the tax cut as a solution to this fiscal conservative's dilemma.

Senate Majority Leader outlined the country's urgent domestic and military priorities and compared the pre-tax cut possibilities for domestic investment with the current post-tax cut reality's "unnecessary fiscal bind," but he did not directly call for a delay in the tax cut as a solution to this fiscal conservative's dilemma.

Senate Majority Leader outlined the country's urgent domestic and military priorities and compared the pre-tax cut possibilities for domestic investment with the current post-tax cut reality's "unnecessary fiscal bind," but he did not directly call for a delay in the tax cut as a solution to this fiscal conservative's dilemma.

On Friday, January 4, in a speech at the Center for National Policy Senate Majority Leader Tom Daschle (D-SD) laid out his proposal for legislation to help the economy recover and sustain long-term growth. His "economic growth plan" is a combination of immediate one-year economic stimulus proposals and long-term domestic investment initiatives.

In addition to the original components of the Democrats' economic stimulus package-- an increase in weekly unemployment payments, an extension of the number of weeks a person may receive unemployment benefits, and a tax rebate for low-income workers -- Daschle added two new short-term elements in his speech. The first, a "Jobs Creation Tax Credit," would reimburse the cost of increased payroll taxes to any business that hires new employees or gives current employees a raise. The second is a revised version of the depreciation bonus for businesses proposed by Democrats and Republicans last month. In place of the Senate Democrats' original proposal of a one-year 10% depreciation bonus or the House Republican's three-year 30% bonus, Daschle has proposed a 40% bonus for the first 6 months and a 20% bonus for the next 6 months to provide an increased incentive to businesses to purchase new equipment sooner rather than later. (Daschle likened this proposal to the extremely popular 0% financing option car companies offered last month.) Both the Jobs Creation Tax Credit and the increased depreciation bonus are billed as one-year initiatives to encourage companies to spend (or hire) now, when the impact on the economy is most needed.

The other half of Daschle's economic recovery package, however, has a long-term focus and is aimed at maintaining growth and building capacity to generate future growth. It includes increased spending on homeland security and the public health system (to restore confidence and increase consumer spending) and spending on education, job training, and technology (to provide for well-educated, qualified American workers to spur on the next wave of technological development). Daschle also gave his full support to "fast track" trade authority for the President (for a view against "fast track," see this Economic Policy Institute analysis) though he coupled it with a demand for increased assistance in job training for workers displaced by increased trade. He cited the need for a revised energy plan both as a means of reducing US dependence on foreign oil and as a means of generating economic growth through the investment in alternative energy research. Daschle closed his speech with a criticism of the recommendations issued by Bush's Social Security Commission. He stated that any proposal to create private accounts for Social Security, a program he called the "most successful government program in history," could come only as one part of a large plan to "restore fiscal discipline and … extend the solvency of the Social Security system."

Daschle's attention to long-term investments in the nation's economy, students, low-wage workers, and national public health infrastructure is welcome. One element was noticeably absent -- a means to pay for these investments without bringing the budget further into deficit. Though he expressed confidence in the ability of the White House and Congress to devise legislation to generate economic growth, help alleviate some of the recent budget pressures and eventually return the budget to surplus, such legislation would, at least initially, enlarge the deficit. While many economists actually support temporary deficit spending as a means of recovering from a recession, Daschle seems to be focused on "fiscal discipline" and "fiscal responsibility" that is limited to avoiding deficits and the "mistakes of the past." Having eliminated temporary deficit spending as an means to accomplish our national priorities, Daschle described the remaining alternatives as a choice between ignoring the "critical needs" he identified and "raiding the Social Security surplus."

There is, however, one other option - one that is perceived by most as too politically damaging to address: delaying or even rolling back the tax cut signed into law in June. Daschle did address the problems of the tax cut and even cited the Congressional Budget Office's (CBO) August 2001 report that credited the tax cut for 2/3 of the drop in the 10-year budget surplus projections. He compared the pre-tax cut possibilities for domestic investment with the post-tax cut reality of an "unnecessary fiscal bind," but he did not make that final step and announce a delay in the tax cut as a solution to this fiscal conservative's dilemma.

He may as well have though, since President Bush in his weekend speeches to workers in Oregon and California, called a delay in the implementation of the June tax cut a "tax raise" and warned that "not [sic] over my dead body will they raise your taxes." But in his response, Daschle denied this charge and explained that, far from raising taxes, he was actually proposing additional tax cuts in the form of the Jobs Creation Tax credit and the accelerated depreciation bonuses for businesses.

All of this may be entirely beside the point, anyway, for as many political pundits have observed, last week's speeches are more an indication of the rhetorical and political battles to come in this year's elections and less so of any true legislative agenda of either side. With everyone from Office of Management and Budget (OMB) Director Mitch Daniels to House Budget Committee Ranking Member John Spratt (D-SC) predicting deficits for the next few years (see related story, this issue), many people, like Republican strategist Grover Norquist, are predicting that all other issues will be subordinate to the budget debate. It seems unlikely that with this divided Congress and in an election year, there will be much substantive agreement. However, the focus on the budget, which represents the resources necessary to accomplish our national priorities, may present an opportunity for a real debate about federal investments to strengthen our communities, schools, health systems, and education and job training programs. Perhaps. But, we must urge our representatives to understand "fiscal responsibility" much more broadly than the absence of a deficit.

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