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Bush Must Avoid the Tax Hike Trap

Tuesday, 14 December 2004 12:00 AM

Fixing the Social Security problem is potentially a cornerstone in the legacy of President George W. Bush. But many liberals and even some conservatives are trying to convince him that raising Social Security taxes is inevitable if this effort is to succeed.

Having staked out a firm position as a tax-cutter and one who mans the barricades against those who believe the government spends money more wisely than the Americans who worked for it, it ill behooves George W. Bush even to think of heeding the siren songs of those who argue that however painful, we must sock the taxpayer again because “we have no choice.”

Yes we do, the president says.

“We will not raise payroll taxes to solve this problem,” he vows, making the point that when this President Bush says something akin to “Read my lips, no new taxes,” he means it.

The tax-hike chorus is rising, however, and the Bush White House will have to deal with it.

Senator Lindsey Graham, a Republican from South Carolina, wants to increase the current ceiling of $87,900 subject to a worker’s annual payroll tax to a whopping $200,000. He argues that the money will be needed to cover the estimated $1 trillion in the transition costs of allowing workers under 55 to set aside a portion of their Social Security taxes for private investment accounts.

Conservative activists who play hardball when deciding where to put their contributions in primaries as well as general elections will not hear of it.

“If you want to short-circuit the whole idea of private investment accounts, the best way to do it is to attach to it a big tax increase,” Club for Growth President Stephen Moore told NewsMax.com in an interview.

Raising payroll taxes would be counter-productive to reforming Social Security and saving it from bankruptcy in future years, Moore believes. “It would basically cancel out many of the positive economic effects of creating the personal accounts in the first place."

As the Republican tax-raisers of 1990 learned the hard way, there is no political capital to be gained from raising taxes. Some in today’s GOP have forgotten that basic lesson: “Anytime you raise marginal tax rates, you discourage investment, you discourage work, you discourage job creation,” Moore says. That in turn leads to less — not more - revenue for the government in a “Catch-22” effort to “pay” for growth-oriented accounts.

Every politician knows all too well that with nearly every economic price comes a political price, as well. Liberals are watching this internal GOP debate while rubbing their hands with glee. Freedom Works Co-Chairman Jack Kemp, a political guru of “supply-side economics,” says left-wing Democrats are hoping to turn the personal accounts effort into “President Bush’s HillaryCare.”

And “Who can blame them?” he writes in the Washington Times. “When they smell weakness within Republican ranks, even thoughtful Democrats can’t be blamed for calculating they can let the Republicans self-destruct, deprive Mr. Bush of the credit for reforming Social Security and come back in four years to take credit themselves.”

Exactly. No doubt President Bush remembers that the 1990 tax increase was followed by a mild recession, arriving just in time for his father’s 1992 re-election defeat. The younger President Bush’s place in history will depend to a great extent on whether he succeeds in putting Social Security on sound footing for future generations. Wiping that out with a tax hike will be seen - and rightly so - as a failure.

Moore of Club for Growth flatly disputes a claim by columnist Robert Novak that Senator Graham — in pressing his tax increase as a trade-off for Democratic support for private accounts — “has the ear of important White House aides.”

“I don’t believe that’s accurate,” said Moore who himself has excellent connections at the White House and Capitol Hill. President Bush “throughout this whole debate, has been very firm on he idea that he is not going to raise taxes to pay for private investment accounts.”

Senator Graham has been telling his colleagues that Social Security private accounts won’t pass without significant Democrat help.

That won’t fly either. Already Rep. Allen Boyd, a fourth-term Florida Democrat who sits on the powerful Appropriations Committee, has joined with Republicans to sponsor the enabling legislation without any tax increase included.

“Look, if you’re going to have meaningful reform, you’ve got to get past this notion that we attack them for every position or idea they float out,” he said.

Moreover, such high-profile, moderate Democrats as Rep. Harold Ford Jr. of Tennessee and Senators Ben Nelson of Nebraska and Evan Bayh of Indiana have quietly indicated they are willing to consider doing likewise.

Many Democrats understand that obstructionism can backfire, as it did in the defeat of outgoing Minority Leader Tom Daschle in South Dakota. If blocking the confirmation of several judges can play such a prominent part in the demise of a high profile Democrat such as Daschle, imagine what will happen if the public perceives that Democrats were instrumental in letting the Social Security program go bust.

It will not do to blame Republicans merely because they control the White House and Congress. Voters are capable of understanding the Democrats have a role to play, as well.

Mounting his high horse following his own re-election win, incoming Senate Minority Leader Harry Reid piously declared that Democrats would not allow Republicans to “hijack” Social Security for the benefit of “fat cats on Wall Street.”

More future Social Security beneficiaries, particularly younger ones, see a system that is going broke because Capitol Hill “fat cats” hijacked it for their wild spending schemes.

That old-style “fat cats-on-Wall Street” rhetoric won’t resonate with many voters with a serious interest in saving Social Security for their senior years. The electorate will not take kindly to political demagoguery that threatens their livelihood.

The road ahead for GOP House leaders is clear: 1. They need to reason with an estimated 30 of their own Republican members who are leery of private Social Security accounts. 2. It is imperative that they not appease the hard-nosed left flank of the Democratic Party. Instead they would do well to go about the business of recruiting some moderate Democrats who are more interested in solving the problem than in partisan gamesmanship.

Those who regularly count heads on Capitol Hill are convinced that Democrats who can be won over by injecting a tax increase into Social Security reform would be more than offset by defecting Republicans who would recoil at the idea. Better to build a bipartisan coalition that wants to solve the problem.

Assure those 55 and older the system on which they have relied will not be disturbed. Give younger workers the option of staying with the current system or investing some of their payroll tax money in private accounts. These younger workers understand the value of letting their congressmen and senators know of the political consequences of gumming up the works on an issue relating to their retirement.

As Stephen Moore put it to us, “Here you’ve got this nice, sweet piece of pie [personal accounts] that you want to shake salt on.”

That would be a sure-fire recipe for losing — not gaining — votes.

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Fixing the Social Security problem is potentially a cornerstone in the legacy of President George W. Bush. But many liberals and even some conservatives are trying to convince him that raising Social Security taxes is inevitable if this effort is to succeed. Having...
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Tuesday, 14 December 2004 12:00 AM
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