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Bush Bets He Can Sell Big Tax Cut
Democrats Hope GOP Flops Again

By Dan Balz
Washington Post Staff Writer
Monday, December 13, 1999; Page A01

Texas Gov. George W. Bush is gambling that when it comes to tax cuts, he will succeed where the rest of his party has failed.

Robert J. Dole couldn't sell the public on his tax cut in the 1996 presidential campaign. Congressional Republicans passed a $792 billion cut last summer but couldn't move public opinion enough to prevent President Clinton from vetoing it.

Bush's presidential hopes could hinge on whether he proves more adept in making the case for his proposal to cut taxes by $483 billion over five years--a plan more costly than either Dole's 15 percent rate cut or the congressional Republican measure.

Aimed in part at shoring up conservative votes in the upcoming Republican nomination fight, Bush's plan will face its most severe test should the Texas governor become the GOP nominee.

Already Democrats are salivating at the target Bush has put before them. Vice President Gore attacked it immediately as fiscally irresponsible and said it would bring about "the complete elimination of the surplus" and damage the economy. Key Democratic strategists argue that despite Bush's claims that the plan tilts toward lower- and middle-income workers, it distributes most of the benefit to the wealthy.

"I think it will take him through the first week of the general election, but not last through the second week of the general election," said Democratic pollster Geoff Garin. "When Gore or Bradley make the case that this is coming at the expense of education or health care or Social Security, I think lower- and middle-income voters are going to decide it's a bad deal and the same old Republican stuff."

In an interview last week, Bush brushed off those criticisms and said he was sure he could convince voters his plan provides an insurance policy for the vibrant economy and a break from Republican orthodoxy by channeling more help to less wealthy taxpayers.

"They may think they're going to salivate, but this is a plan that people are going to hear loud and clear is fair. Democrats never want to cut marginal rates because they'd rather spend the money. That's where the debate is going to be," Bush said.

Bush's plan reduces rates and provides other cuts. Now there are five tax rates: 15 percent, 28 percent, 31 percent, 35 percent and 39.6 percent. Bush calls for four: 10 percent, 15 percent, 25 percent and 33 percent. He also doubles the child tax credit, reduces the marriage penalty, allows taxpayers who don't itemize to deduct charitable contributions, ends the Social Security earnings test and increases educational IRAs.

The size of the tax cut makes Bush's political sales job more difficult. Congressional Republicans failed to sway public opinion in their tax-cut battle with Clinton. A recent Washington Post survey of issues Americans worry about found that concerns of not getting a tax cut ranked 34th on the list. Far more Americans said they worried that Social Security or Medicare would run out of money.

Bush ended up with a tax-cut proposal of nearly $500 billion over five years because he wanted to be bold and he wanted to look like a different kind of Republican. "I wanted enough of a cut to be able to make the case that this cut would stimulate the economy," he said. The second factor that enlarged the size of the package was that Bush was "deeply concerned about a [tax] code that made it hard for people working hard to make it in the middle class."

To attack that problem, Bush included in his package a proposal to reduce the bottom tax rate from 15 percent to 10 percent and to double the child tax credit to $1,000. Bush said that on a percentage basis "the people at the bottom get a bigger tax break." Those workers now pay the highest marginal tax rates, he said, and asked, "How can we turn a deaf ear to those who are working the hardest in the economy?"

Bush and his advisers said that half the total cost of the tax cuts comes from those provisions--a symbol, he said, of his compassionate conservatism. But if those provisions account for half the cost of the package, the benefits still go to those with the highest incomes, one of the reasons Democrats find it easy to criticize.

Al From, president of the Democratic Leadership Council, said Bush's proposal has two big flaws. "It's big enough to do damage to the economy and the rhetoric is much better than the results in terms of helping poor people."

Bush and his advisers readily acknowledge provisions designed to help lower-income workers also help the rich. "We designed a plan to benefit those people [with lower incomes]," a Bush adviser said. "If other people benefit, that's fine. We just don't view it that somebody has to lose in order for somebody to win. And that's the difference with the basic Democratic approach."

Citizens for Tax Justice, a progressive organization, said in an analysis that the Bush plan looked "remarkably like" the congressional Republican plan in distribution of benefits. The CTJ calculated that taxpayers in the bottom 60 percent of income would receive 11 percent of the benefits (an average of $249 a year), while the top 10 percent would get 62 percent of the benefits (an average cut of $8,362).

Lawrence Lindsey, Bush's top economic adviser and a former Federal Reserve Board governor, said Bush's plan makes the tax system somewhat more progressive. With the changes Bush is proposing, he said, the share of taxes paid by those making more than $100,000 will rise from 61.9 percent to 64.1 percent. "They're going to say whatever they want to say and all we can do is provide the facts," Lindsey said of the plan's critics.

Bush said he wanted to cut taxes for the wealthiest Americans even more than he proposed. Budgetary constraints and other priorities in the package prevented him from doing so. "I wanted to cut a little more at the top rate but I wasn't able to justify it," he said.

Lindsey said Bush hoped to reduce the top tax rate from 39.6 percent to 30 percent. But given other priorities, he proposed cutting the rate to 33 percent.

Bush not only proposed to double the child tax credit but also called for raising the ceiling on those who qualify for it from $110,000 to $200,000. Asked why he did that, Bush said, "I wanted to make sure the tax benefits [of the package] were spread evenly throughout. Some things affect the very poor and the very rich, and the middle class gets hammered."

Lindsey defended the change, saying it would reduce the marginal tax rate of middle-class taxpayers. "There's a lot of couples in New York and Washington and California who have a combined income of $110,000 to $115,000 who have three kids who don't think of themselves as rich. They're certainly doing well but they don't feel they're rich."

The surpluses Bush proposes to return in the form of tax cuts are predicated on future Congresses staying within the spending caps mandated by the balanced budget agreement of 1997. Asked whether he would outline spending cuts that would keep him within those caps, Bush said, "We don't think we have to" cut spending.

Lindsey said Bush's plan accounts for congressional spending decisions this year that exceeded the caps. But Bush also projects an economic growth rate higher than estimated by the Congressional Budget Office. The result, Lindsey said, is that Bush anticipates a budget surplus of $586 billion from fiscal 2002 to fiscal 2006, more than enough to cut taxes and pay for other priorities, such as defense and education.

Steve Moore of the Cato Institute said that, on balance, he likes the plan but thinks Bush missed several political opportunities, including failing to call for a moratorium on Internet taxes. "If you want to be the pro-growth, pro-Silicon Valley candidate, it's foolish not to be in favor of the Internet tax moratorium."

Bush's advisers say the plan is based on sound economic projections, but some critics, including Democrats and rival Republican John McCain, say it is based on overly rosy forecasts.

Those criticisms offer a preview of the debate that will intensify if Bush wins the GOP nomination. Whether he is better equipped than others in his party have been to win the argument could determine whether he gets the chance to propose his plan as president.

© Copyright 1999 The Washington Post Company

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