There will be lots to digest about the 2002 election – from Democratic incoherence to President Bush’s savvy to the odds of early war in Iraq – but the most consequential domestic question ahead can already be identified: Is there any limit to the tax cuts Republicans will support? How the GOP answers this question will go far to shape the prospects for both justice and growth in America.

For all the hoopla over the Republican “sweep,” the White House knows its freedom of action remains limited. The country is still basically at parity, and a slim margin in the Senate, where 60 votes are required to close debate, means that a determined minority can bottle things up. The most important exception is likely to be tax cuts. If a dozen Senate Democrats voted for an untested George Bush’s tax cut in 2001, it’s hard not to think at least that many will feel obliged to back a triumphant George Bush’s tax cut in 2003.

Are there limits to the tax cuts the GOP will seek? Here’s why the question matters. Give or take a little red ink, both spending and taxes today at the federal level are about 19 percent of GDP. (This spending is down from 22 percent under Presidents Reagan and Bush I; taxes are roughly at historic norms.) Bush plans to shrink spending toward 18 percent of GDP by 2011, even while boosting defense and homeland security by historic amounts.

If Bush gets his 2001 tax cut made permanent, as now seems certain, and if he sensibly fixes the Alternative Minimum Tax (a levy meant to hit a well-off handful that is now slated to bite 30 million Americans by decade’s end), taxes will shrink from a projected 20 percent of GDP in 2011 to about 17.5 percent, according to William Gale of the Brookings Institution. One last trend you need to know: From 2010 to 2020, as the boomers start to retire, Social Security, Medicare and Medicaid are slated to rise by about 2.5 percent GDP, before rising another 2.5 percent of GDP in the decade after.

These trends imply three things:

First: Between now and 2010, there will be no new federal money available for unmet needs in health care, education or anything else. This, of course, is the conservative strategy.

Second: There will be a huge gap starting in 2010 in what is needed to fund boomers’ retirement unless we run deficits on the order of 3 to 4 percent of GDP, rising toward 6 percent in perpetuity. Economy-threatening deficits in this range produced the Perot phenomenon last time.

Third: Any new tax cuts Bush pushes will make this long-term fiscal hole much deeper – and the wish list of corporations and GOP donors is being gleefully assembled as I write.

These are the facts. Do Republicans care? In one sense, no: Since conservatives have no affirmative project for government beyond offering rhetorical “compassion” (as opposed to, say, health coverage) to luckless Americans, starving the feds of money is their goal. Karl Rove may reckon that the GOP can bank the short-term political advantage of long-term fiscal irresponsibility between now and 2004; no one will focus on the looming fiscal collision until 2008. That’s Jeb’s problem.

But some Republicans will care. The thing to watch for is the point at which tax cut mania gets so out of hand that responsible Republicans cry, “No!” Lincoln Chafee, R.I., and old budget warhorse Pete Domenici, N.M., are possible dissenters. But the real power belongs to John McCain.

Despite McCain’s conservative record, he’s the one Republican of stature who has thought about a federal role in such areas as teacher pay, which requires serious money. McCain became a sensation despite offering a tax cut in 2000 that was not only smaller than Bush’s, but also smaller than Al Gore’s. In other words, McCain has credibility that he doesn’t need to buy with tax cuts.

If McCain turns his megaphone now to the cause of fiscal responsibility, he’d perform an enormous public service, especially at a moment when Democrats could be in therapy for months. Meanwhile, we’ll learn soon enough if history is set to repeat itself and Republicans overreach, as they did after their 1994 victory, in ways that sow the seeds of their next setback.

Matt Miller is a syndicated columnist. His e-mail address is: [email protected]


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