A Cautionary Tax Tale

As the Bush team tries to win support for their massive tax-cut program, they'd better keep their eyes on the passel of corporate lobbyists lying in wait. Commentary by CBSNews.com's Dick Meyer.

Ronald Reagan was the last president to be elected with a popular ideology so simple it fit on a button: cut taxes, shrink government, crush commies. Tax reductions for individuals were always the heart of Reaganism and a whole economic theory was created to dress up this simple, popular position. It was called supply-side economics. Some called it Reaganomics; and Mr. Reagan's running mate, George H.W. Bush, referred to it as voodoo economics.

The theory basically held that cutting taxes would stimulate the economy so powerfully that government tax revenues would increase despite the rate cuts for individuals, thereby eliminating budget deficits.

It didn't quite work out that way.

But Mr. Reagan's message was so popular in 1980 that he not only won the White House in a landslide, he also gave the Republicans control of the Senate for the first time since the 1950s. The golden rule of American politics instantly became tax cuts win elections.

That was a dangerous thing. When the politicians got to work in 1981, they tried to outdo each other on tax cuts and eventually got into a now famous bidding war to see who could sell off bigger cuts to the business lobbyists.

This was especially true in the House of Representatives, still controlled by the Democrats, who needed an incentive to go along with the Reagan cuts. So the Reagan team gave the green light to the idea of giving tax cuts to businesses, not just individuals.

The pols were essentially allowed to auction off loopholes and tax breaks to the lobbyists in exchange for their votes. David Stockman, who was then in charge of Mr. Reagan's budget, wrote in his book, The Triumph of Politics: "The last 10 percent or 20 percent of the votes needed for a majority would have to be bought, period."

There were scads of tax breaks targeted at narrow interests – real estate, oil, equipment leasing, windmills and jojoba beans. The mother-of-all-loopholes was called "10-5-3" – a deal to allow business to write off big capital purchases much more quickly. When there was a last minute glitch, CEOs flooded the halls outside the House Ways and Means Committee in an egregious excess of money politics that came to be known as the Lear Jet Weekend. The Economic Recovery Tax Act of 1981 spawned other staples in the lexicon of lobbying, like Gucci Gulch and Christas Tree Legislation.

The economy did get pumped up, albeit briefly; then the deficits went nuclear. Corporate and personal tax shelters proliferated. Draconian cuts in domestic spending were imposed, but still couldn't control the deficits. Taxes were hiked in 1986 and again in the 1990s. Deficits continued until the 1990s economic expansion had lasted six or seven years.

Now it's 2001 and the same lobbyists are hatching the same schemes. The big-ticket item this year is again a way to write off business purchases faster, but this time focused on high-tech. The sharks smell the blood in the water.

So far, President Bush and his principle economic adviser, Larry Lindsey, insist that corporate tax cuts are verboten this year. We'll see. But there are several good reasons to think they're right, apart from their pledges.

For one thing, tax cuts in general are simply not as popular today as they were 20 years ago. For example, a December 2000 CBS News/The New York Times poll showed that 61 percent of Americans favor the Bush tax cuts, while 28 percent oppose. But recent polls also found that only nine percent of the public felt tax reduction was the most important policy goal. By contrast, in January 1981, 76 percent of the public wanted a tax cut and only 16 percent did not.

Further, in 1981 the budget deficits some warned against were really a very abstract evil, dimly associated with prudish Taft Republicanism from the olden days. But for the past 15 years, deficits have been a far more tangible malady, associated with recession, stock market crashes, Social Security shortfalls and painful spending cuts. No one believes or even tries to argue any more that tax cuts also cut deficits. So there will be greater pressure this time not to inflate the tax cuts.

Another helpful force, ironically, is that Republicans control both the House and the Senate, so Mr. Bush may not have to buy as many votes as President Reagan did 20 years ago.

But Mr. Bush has made it clear he wants to do bidness and he wants to do it fast. He better just remember he's riding into Gucci Gulch and there's a lobbyist lurking behind every boulder.

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