BUSH TAX PLAN TAKES LESSON FROM REAGAN THIS TIME CUTS WILL ALLOW SPENDING WHILE PROTECTING ECONOMIC FUTURE.

Byline: Joel Fox Local View

FOES of President George W. Bush's 10 year, $1.6 trillion tax cut proposal claim it will pull the stake from the heart of the budget deficit monster allowing it to rise again.

House and Senate minority leaders Dick Gephardt and Tom Daschle have raised the specter of the deficits following the Reagan tax cuts to scare voters like someone using a bogeyman to scare children.

Opponents of the Bush tax cut say proof of their theory is the president's unexpected call for a spending slowdown at a time of record surpluses. Critics insist this shows the tax cuts cannot be sustained and, along with a military buildup and Social Security and Medicare reform, will more than eat up the surpluses.

However, Bush understands tax-cutting economics. He wants to ensure that uncontrolled spending will not wash away the dynamic pluses of the tax cut.

Bush's economic team remembers that the positive effects of the Reagan tax cuts 20 years ago were shadowed by record deficits. Bush's chief economic adviser, Lawrence Lindsay, wrote a book a decade ago scrutinizing the results of Reagan's economic plan. He looked closely at the question of whether the Reagan era deficits were the consequences of tax cuts.

Disecting a spreadsheet of numbers only an economist could love, Lindsay concluded, ``The overall reduction in the tax burden was thus neither the cause of the deficit increase, nor the major contributor to it.''

Lindsay argued unchecked government spending caused the deficit problem. The Bush administration does not want history to repeat itself.

Deficits did increase in the Reagan years. These deficit increases are often referred to as the largest in peacetime American history. Were the Reagan era budgets really peacetime budgets? True, we were fighting a cold rather than a hot war, but Reagan used dramatically increased defense spending itself as a weapon in that war, forcing the Soviet Empire to up the ante in weapons production, something the USSR could not afford.

Government expands in time of war and usually taxes increase. The first income tax in America helped fund the Civil War; income tax withholding was adopted in World War II. However, the Reagan defense expansion to win the Cold War came with a tax cut. At the same time domestic spending climbed and large deficits resulted.

President Bush is fortunate to govern in different times. The Cold War is over, and while the military must be prepared for possible aggression against the United States, Bush is reviewing the military structure to determine how it can best serve during this era. While the review takes place, Bush initially submitted the final Clinton military budget to the dismay of some Pentagon officials.

Current surpluses can absorb the proposed Bush tax cuts and leave room for some increased spending and debt reduction. Even Federal Reserve Board Chairman Alan Greenspan has acknowledged this can work. Greenspan also noted a danger in continuing a huge surplus: Congress might spend it unwisely on new programs.

Politicians sitting on piles of surplus money, now there's a supreme test for Temptation Island.

Spending profligately is exactly what Congress did last year as the surplus piled up, jumping discretionary spending by 8 percent. Bush and his team have to trim that back. Their goal is to limit overall growth of discretionary spending to no more than 4 percent. Under the Bush plan government will not starve, but taxpayers will justly enjoy getting back part of the surplus they helped create.

The danger to America's fiscal health is not with the president's plan but whether Congress can stand not to spend that pile of surplus cash.

Lindsay is aware of the consequences. He wrote in his book that Reagan lost the political struggle to control domestic spending and the deficit monster thrived. In this moment of surpluses the spending slowdown will not have to be so drastic as Reagan sought, but the political battle over slowing spending must be won this time.

With spending controls, the Bush tax cut should stir the economy and act as a down payment on future surpluses.