Fiscal Policy

WASHINGTON -- It's not often that we look to the dastardly IRS to come to our rescue. But the IRS recently announced the advent of a new tool that just might help avert a growing crisis - the disappearance of savings in the American economy.

Something is missing from the current debate over the hundred-year old estate tax. Instead of eliminating it or merely scaling it back to a point beyond recognition, we should instead be considering expanding the tax on money passed from one generation to the next.

Proponents of repealing the so-called death tax, which oftentimes taxes a person's earnings twice -- once when earned and then at death -- argue that it is unfair (not to mention morbid.)

Will globalization destroy itself? Every few years, another crisis suggests it might. The Internet, satellite phones, and intercontinental air travel help terrorists cross the world in an instant. The global spread of democracy shakes authoritarian governments -- and opens the way for Islamists in Tehran and Cairo, a populist strongman in Venezuela, and nuke-happy nationalists in New Delhi. Open capital markets wreck the economies of Southeast Asia. Divisions between Muslim immigrants and the rest of Europe explode in French riots and Dutch assassinations.

It's hard to think of another time when the U.S. economy was doing so well and the American president was doing so poorly.

So much for the idea that "It's the economy, stupid." Despite remarkable economic growth, for which George W. Bush's tax policies deserve much credit, the unpopularity of some of his other policies, notably the Iraq war and immigration reform, have poisoned his presidency overall -- including his economic ratings.

New research reveals that California is dead last in bringing home the country's largest resource for working-poor families. By April 17, hundreds of thousands of Californians will miss out on applying for the Earned Income Tax Credit (EITC), a source of sizeable refunds that give a financial boost to those at the low end of the pay scale. Golden State residents leave almost $1 billion in federal funds unapplied for. California families pay a big price when they leave these dollars sitting in Washington, D.C.

When nations go to war, government spending goes up. First for the fighting, then for the social-welfaring.

So all the fond dreams of reducing the size and cost of government in the years ahead are just that--fond dreams and nothing more. If a country calls its young people to rally to the colors, it had better be prepared to pay for their service, in the short run and also the long run. To do otherwise is to risk disaster, on the homefront as well as the warfront.

A trend toward privatization and a shift in spending priorities is putting California's public colleges and universities at risk of forsaking their mandate to deliver a quality public education to the state's growing ranks of would-be college students.

President Bush's tax reform panel has ventured into political no man's land. It wants to limit the tax deductions for home mortgages, employer-provided health insurance and state and local taxes.

With President George W. Bush's Tax Commission about to issue its recommendations--opening up a rare opportunity for fundamental tax reform--we would do well to remember one of the iron rules of economics: whatever we tax, we will get less of and whatever we do not tax, we will get more of. In other words, we should tax what is bad, not what is good.

Congress and the president have made responding to Hurricane Katrina the highest priority of the federal government. The tremendous costs involved call for a grand rethinking of the nation's priorities. Given that we are only in the fourth week of the new fiscal year, and the current budget is already basically dead, the first step should be to pass a brand new budget.