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Dole's Economic Package to Feature Major Tax Cut

By Dan Balz
Washington Post Staff Writer
Tuesday, July 23, 1996; Page A01

Robert J. Dole has decided to propose a major tax cut as the centerpiece of his upcoming economic growth package, with a substantial, across-the-board cut in tax rates or a rollback of the 1990 and 1993 tax rate increases as the two leading options under consideration, Republican sources said yesterday.

The decision to support a significant tax cut at the same time he is calling for a balanced budget represents a leap of faith for Dole, who historically has put deficit reduction ahead of tax cuts. Two months ago, Dole spoke cautiously about proposing a sizable tax cut, but several Republicans said yesterday he is now prepared to advocate one.

Dole has not signed off on which of the major options he prefers, and many other details of the program remain in discussion. One other key element under consideration is a proposal that would give workers a deduction for the payroll taxes they have paid, a feature designed to blunt Democratic criticism that the tax cuts are aimed mostly at the rich.

Republicans familiar with the debate said there is a consensus within the Dole campaign that a hefty tax cut must be part of an overall package of initiatives that will be sold as an attack on slow growth and stagnant wages. They argue the growth package is needed to attack what they see as one of President Clinton's vulnerabilities and to provide a clear contrast between the two candidates.

Much of the work now underway by Dole's advisers involves fine-tuning the final elements of the package and providing the analysis of its economic and budgetary impact so that Dole's credibility as a deficit hawk will not be compromised by the plan and that he still feels comfortable aggressively promoting it this fall.

Dole advisers also are debating when to unveil the package. Originally Dole hoped to release the plan by the end of this month. But some Republicans fear that Democrats could blunt the package with a massive ad blitz that could go unanswered because Dole has reached the limit of what he can spend before the convention.

The Dole campaign's fears of a Democratic counterattack are real. A White House official, asked what the Democrats plan to do when Dole releases his plan, replied, "We'll trash it," adding that an advertising campaign attacking the package was likely.

Dole is still likely to announce the plan before the convention in San Diego next month, and Dole advisers say they welcome a strong Democratic counterattack as a way to promote the contrast between the two parties. Republicans plan to counter any Democratic advertising with ads from the Republican National Committee. "We'll be in the ballpark," one Republican said yesterday.

Dole's lengthy deliberations over the economic package have frustrated many Republicans, who believe that slow growth represents a significant vulnerability for Clinton this year and that the Republicans have more credibility than the Democrats in promoting tax cuts as part of the solution.

Republican congressional leaders will meet this afternoon for an economic growth conference that originally was seen as a challenge to Dole to accelerate his decision-making. A number of Dole advisers now plan to be part of the session.

"We're not trying to push him [Dole], not trying to preempt him," said former Housing secretary Jack Kemp, one of the conference organizers. "We're just trying to get thematically to the point where there is a unity of message."

Sen. Connie Mack (R-Fla.), another conference organizer, said, "We want to get the country focused on the importance of the debate that will take place this fall and that is a debate about the performance of the economy and the failure of the Clinton administration to produce a strong economy."

The debate over Dole's plan has been portrayed as a battle between supply-siders and deficit hawks, but gradually the two sides have begun to move toward one another. Republicans involved in the discussions cautioned that the plan now under consideration should not be seen as one that calls for tax cuts for their own sake, but as part of a larger set of policies designed to attack chronic slow growth and stagnant wages.

Sen. Spencer Abraham (R-Mich.) has been the principal advocate for a 15 percent cut in marginal tax rates, but Dole's advisers have been analyzing a number of variations, including a 10 percent reduction in rates. Another proposal under discussion could cut lower-bracket rates more than upper-bracket rates. That would concentrate more of the impact on middle-income families.

The rollback of the 1990 and 1993 tax increase would replace the current five-rate system with two tax rates of 15 percent and 28 percent, and in the words of one advocate, be a move toward a single-rate system, which is favored by many Republicans, including Kemp and Dole's rival in the primaries, Malcolm S. "Steve" Forbes. But Dole's advisers also are looking at other two-rate structures.

A full 15 percent across-the-board cut, when fully implemented, would cost about $100 billion a year, according to GOP estimates, although Dole's advisers are analyzing the impact of phasing it in. The rollback of the tax increases from 1990 and 1993 would cost somewhat less than the 15 percent cut, if done at once, but it too could be phased in to reduce the impact on the deficit.

The payroll tax deduction has been advocated by Sen. John D. Ashcroft (R-Mo.) as a way to court middle-income voters. Dole's advisers, fearful that Democrats will denounce any rate increase as a tax cut for the rich, are analyzing the distributional effects of the Ashcroft plan and various tax cut options and adjusting the package, if necessary, to minimize that problem.

While a major tax cut will be presented as the centerpiece of the plan, other elements are likely to be included, ranging from other tax cuts – on capital gains, for example – to policies to stimulate savings or to promote education and training of the work force. "It's not just handing out lollipops to voters," one Republican said yesterday.

The tax cut also could be put forth as a down payment on a broader revision of the tax code. Dole repeatedly has called for a flatter and fairer tax system, and many Republicans favor a single-rate system and a much-diminished role for the Internal Revenue Service.

© Copyright 1996 The Washington Post Company

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