WASHINGTON -- Rosy Scenario is back in town, dressed as a Republican and carrying a bunch of tax cuts in her purse.
Citizens living outside the Beltway may not remember Rosy, because she has been away for several years and is best known in the narrow circle of economists and reporters who follow the federal budget.
During the Reagan years, Rosy got her reputation when the White House issued budgets that promised to gun the economy with supply-side tax cuts, build up defense, and eliminate the federal budget deficit.
The tax cuts, which Congress adopted, were supposed to generate more business activity and consumer spending, which in turn was supposed to produce more revenue for the Treasury -- not less. As it turned out, Reagan did preside over an economic boom, but it was financed with a growing pile of national debt.
President Clinton went out of his way to offer realistic budgets and economic forecasts that would win credibility in financial markets. He succeeded, helping the Federal Reserve keep interest rates low in 1993.
Now Rosy is back again, sashaying around Capitol Hill with the new Republican leaders and promising wonderful things to her patrons. It is an unsightly scene, but the Republicans are embracing her in public, and we have yet to learn what will go on behind closed doors once the 104th Congress gets underway.
Rep. Jim Saxton, R-N.J., set the tone last week when he introduced the Tax Reduction Act of 1994, a bill to slash tax rates across the board by 17%. The measure would gradually lower the bottom tax rate from 15% to 12% by the year 2000 and drop the 28% rate to 22%. High-income individuals would see the top rate of 39.6% slashed to 33%.
Saxton's bill was a gesture, not a serious act of legislation during a two-day lame-duck session. It will have to be reintroduced next year. Moreover, Saxton himself called the bill an attempt "to start the ball rolling" to lower taxes -- not a hard-set position.
In an interview with Reuters, Saxton defended his bill and said that, "given time it will be revenue-neutral," by stimulating the economy and producing fresh tax receipts for the Treasury.
Some big Republican guns immediately signed on as cosponsors of Saxton's legislation, notably House Speaker-elect Newt Ginrich of Georgia and incoming Majority Leader Dick Armey of Texas. Armey, an economist, should know better, but he and other Republicans are smitten by Rosy.
Clearly, this is only the beginning of a long, drawn-out debate between Republicans and Democrats about cutting taxes. The Washington Post has reported that Clinton is studying a middle-class tax cut of $40 billion to $50 billion, although Clinton has said he wants to find a way to pay for it.
Cutting taxes is a laudable goal, but the Republicans owe the voters some straightforward budget talk instead of trying to take everyone over for another party at Rosy's place. The bond market will not be fooled, and a fiscal food fight on Capitol Hill can only destabilize the market and help to keep rates high.
