The tax debate we are NOT having

Can a great nation remain great while its leaders spout talking points and evade reality?

The tax cuts that George W. Bush rushed through Congress in 2001 were unwise. As we budget analysts pointed out at the time, America could not afford them because our existing tax structure made insufficient provision for the rising costs of Medicare and Medicaid and, to a lesser extent, of Social Security. As Bush's legislative team maneuvered the cuts through the Congress, Federal Reserve Chairman Alan Greenspan and Bush Treasury Secretary Paul O'Neill, both Republicans, warned in meetings that permanent tax cuts were a mistake. Then they retreated to the Treasury Building to tell each other that America would come to regret this.

Senate procedures made it impossible to pass more than a 10-year tax cut in 2001 without concessions to conservative Democrats that Bush did not wish to make. Thus at the end of this year the tax rates revert to their Clinton-era levels. Those levels, which suited us fine back then and were consistent with rapid and high-productivity investment-led economic growth, brought us many steps closer to achieving a stable, long-term foundation for our government's finances. Moreover, they quieted an important source of uncertainty that hobbles business; for when government spends more now than it taxes now, somebody ultimately is going to pay the taxes to balance the government's books—they just do not know who they are yet.

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Brad DeLong is a professor in the Department of Economics at U.C. Berkeley; chair of its Political Economy major; a research associate at the National Bureau of Economic Research; and from 1993 to 1995 he worked for the U.S. Treasury as a deputy assistant secretary for economic policy. He has written on, among other topics, the evolution and functioning of the U.S. and other nations' stock markets, the course and determinants of long-run economic growth, the making of economic policy, the changing nature of the American business cycle, and the history of economic thought.