THE BUDGET LINE

Congress this week will say whether it is content to let the nation slip back into rampant deficit spending or demand the fiscal discipline needed especially in time of war. The president’s tax-cut plan, offered once as economic stimulus, then long-term growth and lately as a measure of support for the troops, is not affordable or desirable for a nation facing a record-setting deficit this year and more on the way next. No tax cut should be considered until the cost of fighting and then helping to rebuild Iraq is known, but since this is no longer the case, a smart tax cut rather than a big one is the better choice.

Both houses briefly considered this option of no cut, but both eventually approved large tax breaks in their budget resolutions: the Senate, $350 billion over 10 years; the House, $726 billion. Both are too large, but the Senate’s number is preferable and is plenty large enough to stimulate the economy if the money is directed toward immediate, temporary stimulus. That could mean, for instance, speeding up the planned phase in of the child tax credit and approving the proposed small-business expensing provision in the president’s plan. It should also mean directing funds to the states, which, unlike many taxpayers who received a rebate from the 2001 tax cut, will not stick the money in the bank but will use it to pay for health care, road construction or capital improvements. That creates jobs while strengthening state budgets.

The Senate approved the smaller tax cut because a few Republicans – Sens. Olympia Snowe, George Voinovich of Ohio and Lincoln Chafee of Rhode Island – stuck with Democrats on what was a compromise position when many Democrats wanted no tax cut at all. The pressure from party members on these Republicans is now enormous to agree to a further compromised figure from the House and Senate conference, likely something around $500 billion. This, the three say, they will not do.

And they should not. Republicans have been looking for budget savings to offset the added cost of increasing the size of the tax cut, but finding savings of $150 billion or $200 billion without increasing taxes elsewhere is not easy. Without the offsets, the tax cut envisioned by the House adds to the deficit without even the long-term prospect of stimulating new revenues, according to the Congressional Budget Office’s latest estimates. That means fewer chances for Medicare reform, Social Security protection, added veterans’ benefits or funding to match the federal education mandates.

Some Republicans have urged Sen. Snowe to pass a larger tax cut and use her position on the Finance Committee, where Republicans hold a one-vote edge, to control what comes out of the committee. But this is merely pressure delayed. She should stick to the $350 billion, and she would be helped if Sen. Susan Collins joined her there. Sen. Collins’ support would signal to Senate colleagues and to the House that moderates were serious about passing a budget resolution with an effectively targeted $350 billion tax cut and, at the same time, they were concerned about the unknown cost of the war and rising deficits.

One final benefit: If the smaller tax cut proves not sufficiently stimulative, Congress should have no trouble returning to the subject once the war costs are known. But if it passes the full $726 billion or something like it now, it will have no place to turn should that prove to be ineffective. A smaller, smarter tax cut is the better choice.