The great tax-cut stampede is on, and two things could get trampled underfoot: restraint and common sense. Conservatives, liberals, the Business Roundtable, and lobbyists of all kinds are demanding their fair share. A mindless, bloated, something-for-everyone tax cut may result. Before Washington gets swept away and does something that the country regrets for years to come, it might be wise to step back and consider a few simple truths.

First, no one really knows how big the budget surplus will be over the next 10 years. Mammoth tax cuts based on surplus projections for a decade are simply huge bets on a fiscal future that almost certainly won't exist. The same economists that are now projecting nearly $6 trillion in surplus not so long ago were predicting gargantuan deficits. They did not foresee the rise in productivity, and so missed the increase in the economy's potential noninflationary growth rate.

Similarly, no one really knows just how low--or high--taxes should be in the U.S. The country grew steadily throughout the 1980s when President Reagan made deep cuts in income taxes, raised defense spending, and added trillions to the budget deficit. The U.S. also grew strongly in the 1990s when Congress capped spending and Presidents Bush and Clinton raised taxes, creating big budget surpluses. It just may be that new technologies and globalization had a far greater impact on growth in both decades than fiscal policy did. The same could be true over the next 10 years.

Finally, no one knows what is fair in tax policy. It is incontrovertible that the top 5% pay more than half of all income taxes, while the bottom 50% pay only about 4%. In some states, the marginal rate is an egregious 50%. It seems only fair to trim the marginal rate on income taxes for those who pay most of them. Yet the working poor and lower middle class also carry a heavy tax burden. Three-quarters of the U.S. population pays more in FICA payroll taxes for Social Security and Medicare than they do for income taxes. It seems equally fair to trim taxes for these Americans.

In light of all these unknowns, we urge Washington to stop the stampede. That means, above all, restraint in cutting taxes. Given the improbability of current projections for the surplus, President Bush should avoid the dozens of tax breaks lobbyists will want to attach to his bill and consider accepting a lower total tax cut in final negotiations with Congress.

Politicians invariably show solicitude for the middle class. But the truth is that the burden of the income tax falls most heavily on the rich, and the burden of the payroll tax falls most heavily on the working poor. They are the ones who deserve the most relief. If Washington cuts the top marginal rates on income taxes, it also should provide payroll tax rebates or credits against Social Security payments. Both these tax-cutting moves would be fair.

In his Senate testimony on Jan. 25, Federal Reserve Chairman Alan Greenspan appeared to give his blessing to massive tax cuts that extend well into the decade. Despite his caution that predictions of budget surpluses are "subject to a relatively wide range of error," his benediction changed the political climate in Washington and set off a tax-cut frenzy that is now veering out of control. To introduce an element of restraint, it would be useful if Greenspan reiterated what he also said in his testimony--he prefers tax cuts but only if they are pegged to specific future budget surplus targets. It's time to get a grip.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE