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Jewish World Review Feb. 26, 2001 / 3 Adar 5761

Philip Terzian

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Tax cut? How bourgeois -- THERE'S an amusing, and instructive, little battle being fought in the European Union at the moment.

Of the member nations that have adopted the euro, the EU's controversial common currency, one country enjoys the distinction of boasting Europe's freest economy, lowest taxes, highest growth rates and greatest increases in productivity: Ireland. And yet which country is being threatened with EU sanctions for planning to cut taxes? The answer, once again, is Ireland. "Sometimes the teacher has to punish the best pupil," says Romano Prodi, president of the European Commission.

The EU claims that a tax cut would fuel inflation. But the Irish government argues that, given the country's eight percent annual growth rate in the past few years, it can easily absorb the effect of tax cuts, given Ireland's low labor costs, rising rates of productivity and deregulated economy. And anyway, the EU's concern about inflation masks the genuine reasons it is annoyed with Ireland: Resentment and envy.

The larger European economies, notably France and Germany, resent the fact that Ireland was, for many years, the beneficiary of generous EU subsidies, and the Irish government now proposes to translate its success into tax breaks for its citizens, not the EU bureaucracy.

That's the resentment part. The envy is grounded in the fact that Ireland's spectacular growth is made possible by the absence of sclerotic, welfare-state regulations that burden EU members with sluggish growth and high unemployment.

It may seem an unsophisticated reason to govern fiscal policy, but envy should never be underestimated as an engine in politics. Envy and, to some degree, class distinction. For that can be seen here in the gathering debate over Pesident Bush's proposal to honor his campaign pledge, and reward American taxpayers with an across-the-board, $1.6 trillion tax cut.

Al Gore campaigned against the tax cut by complaining that the nation's wealthiest people would benefit the most. Candidate Bush never disputed the claim: America's rich inhabit the highest tax brackets, and pay the most. But the weakness of Al Gore's argument was that George W. Bush, in seeking the votes of millions of taxpayers, would institute a rate cut designed to benefit a few thousand people. In truth, of course, the Bush proposal would cut rates for the wealthy (who pay the greatest percentage of taxes), eliminate taxes altogether for the working poor and, most important, return a portion of middle-class wealth to where it belongs: In the bank accounts of the tens of millions of middle-class ratepayers who could use it.

This is deeply disturbing to the political class in Washington, which regards federal revenue as a G-d-given windfall, and not the hard-earned money of working Americans that the government expropriates. It is also distasteful to those who are, well, personally uncomfortable with the whole idea of tax cuts. To them, tax cuts are the favorite cause of people who used to gripe about fluoride in the drinking water, or who still lament the absence of prayer in public schools. The best known citizen-taxcutter of modern times was the late Howard Jarvis, a bumptious California businessman-legislator who wore aviator glasses and polyester sportcoats, and wrote a book called I'm Mad as Hell. Not quite one of us, as it were.

An exquisite example of this sort of thinking could be seen in a recent full-page ad in The New York Times, objecting to congressional proposals to eliminate death taxes. Signed by Bill Gates' father, financier George Soros, actor Paul Newman, assorted Rockefellers "and more than 200 other signers," it made the explicit point that repealing death taxes would devastate charitable giving, for which no evidence ws offered. Its implicit point, however, was more insidious: We're so rich we don't require estate tax reform.

No doubt, such reasoning appeals to the likes of Warren Buffett, or those multimillionaire members of the U.S. Senate, for whom an extra $1,500 next year is essentially meaningless. But tax relief is more than returning wages to the great unwashed who earned them, or helping farmers and small businessmen devastated by death taxes. It is a question of the covenant between citizens and their government.

Except for a brief, three-quarter slowdown during 1990-91, the United States has enjoyed nearly two decades of uninterrupted economic growth, a record unprecedented in American history. The colossal revenues that have flowed into government coffers, creating a surplus, are not a matter of luck or inadvertence: They are the result of the Treasury extracting considerably more than its fair share of the American economy. The idea that returning a small portion of that money to the people from whom it was taken might threaten the fiscal foundations of government is something only certain Democrats in Congress, and billionaires in their gated retreats, could believe.

JWR contributor Philip Terzian is associate editor of The Providence Journal. Comment by clicking here.


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© 2001, The Providence Journal