News: Analysis & Commentary: TAXES: ELECTION '96
DOLE PLAYS THE TAX CARD
The deficit hawk recasts himself as a tax cutter. Why it may not work
If Republicans have one core belief left from the Age of Reagan, it's this: When they embrace tax cuts, they win elections. Bob Dole is staking the hopes of his fitful and floundering campaign for President on that abiding faith. After months of hesitation, Dole will embrace a massive cut in individual income taxes as the centerpiece of his economic agenda. By wrapping himself in Reagan's mantle, the lifelong deficit hawk hopes to transform himself and appeal to voters weary of a slow-growth economy.
This time, the GOP's tax magic might not work.
Dole's tax plan doesn't seem likely to deliver either the economic boost or the political help he needs. The growth GOP partisans claim will gush from lower tax rates is more likely to be a trickle, say most forecasters. And the candidate will have a hard time explaining how he'll cut taxes by as much as $600 billion while finding almost $1 trillion in spending cuts to balance the budget by 2002. Politically, Dole's dual promises are likely to remind voters of the Republican Congress' unpopular attempt last year to finance tax cuts with savings from Medicare. Polls show that voters would rather keep President Bill Clinton, who promises small, targeted tax cuts, in charge of fiscal policy.
SIMPLIFYING TAXES. The public's seeming defection isn't keeping Dole from throwing in his lot with the GOP's supply-side wing. Aides to the former Senate majority leader have been talking up tax cuts to rejuvenate his campaign since May. But Dole, who has a long career of backing tax hikes to cut the deficit, wavered. Then, on July 23, faced with a challenge from GOP leaders in Congress, he bowed, sending his chief policy adviser, Donald Rumsfeld, and his favorite deficit hawk, Senator Pete V. Domenici (R-N.M.), to a tax-cutting pep rally. Even Domenici declared that "we must reduce taxes on the American people."
Dole's blessing clears the way for advisers to move into final drafting of an economic agenda, which he'll unveil before the Aug. 12 GOP convention. The package calls for such growth-boosting policies as cuts in regulation, product-liability reform to pare business' legal burdens, and school choice and vouchers to bolster education. He is also backing a list of tax breaks from last year's GOP Congress: estate tax relief, a broader home-office deduction, and cuts in the capital gains tax rate.
But the centerpiece of Dole's plan will be a sweeping cut in individual taxes, totaling more than $400 billion over five years. The two main options: an across-the-board cut in individual-income tax rates of 10% to 20% (with 15% most likely), or a rollback of the 1990 and 1993 tax hikes backed by Presidents George Bush and Clinton. The 15% rate cut would reduce taxes by about $400 for a family with $40,000 in income; rolling back the earlier tax hikes would have less effect on middle-income workers. Dole aides say that other ideas, such as a credit or deduction for Social Security payroll taxes, are losing ground. Dole will follow up his tax cut with a plan to replace today's tax code with a simplified one- or two-bracket system similar to the "flat tax" backed by many Republicans.
The GOP's goal: Make an issue of slow growth in the Clinton era. While the President can boast of sustained expansion, low inflation, and 10 million new jobs, real gross domestic product has grown at an average pace of only 2.3% since 1993. Clinton's economists, like most forecasters, see no sharp increase during the rest of the '90s. "This is the slowest economic recovery since the Great Depression, and it can only be attributed to President Clinton's record-setting 1993 tax hike," charges House Majority Leader Richard K. Armey (R-Tex.), a leading flat-tax advocate.
Republican strategists hope tax cuts will change the dismal dynamics of the Presidential campaign so far. "The second the debate shifts to taxes, we start winning," says a senior Dole adviser. That would be welcome news to Dole's business backers, many of whom are dismayed at his entanglement in issues such as abortion, guns, and tobacco. An economic plan "will energize some key [business] constituencies and show that maybe there's some light at the end of the tunnel," says Karen Kerrigan, president of the Small Business Survival Committee, a lobbying group.
But voters don't seem to share that tax-cut fever. In a Harris Poll of 1,002 adults conducted July 9-13, Americans feel Clinton would do a better job of managing taxes than Dole by a 48% to 41% margin. While the GOP rails against the "Clinton crunch," the poll gives the President a 22-point edge on creating jobs and a 16-point edge on handling the economy.
The public is wary of election-year tax promises, warns independent pollster Gordon S. Black. "Who is Dole kidding?" Black says. "Nobody's going to believe it." Indeed, a June 20-25 NBC News/Wall Street Journal poll of 1,637 registered voters found 71% dismissed the 15% across-the-board tax cut as "a political gimmick." That's great news for Reform Party contenders Ross Perot and Richard D. Lamm, who deride Dole's growth-by-tax-cuts promises.
Supply-siders still insist such a program will work. Former Housing & Urban Development Secretary Jack Kemp, who sparked the GOP's July 23 tax-cutting conference, says tax reform can double the economy's annual growth to 4.5%. Dole advisers are less ambitious: They figure growth will pay for 30% to 40% of the tax cuts, implying a boost of about 0.4 percentage points in the growth rate.
But academic economists say that Dole's goal is out of reach without a sweeping cleanup of the tax code. They say achieving it might require steps like ending the mortgage-interest deduction, which they say distorts the economy by steering capital into housing rather than business. Such measures are more radical and politically unpalatable than what Dole is considering.
Democrats are already counterattacking. They say Dole's tax cuts would reverse the 60% deficit reduction on Clinton's watch. They're also playing up class warfare: "We don't need new tax breaks for the wealthy paid for out of the hides of working American families," says House Minority Leader Richard A. Gephardt (D-Mo.). With a double-digit lead in the polls, the Clintonites figure they can have fun at Dole's expense. On July 23, the Democratic National Committee set up a toll-free line so Americans could suggest ways to "help Bob Dole formulate an economic plan."
If Ronald Reagan were the candidate, the joke would be on the Democrats. But Bob Dole has never had the Gipper's sales skills--even when he's pitching something he believes in. As a reluctant supply-sider, Dole may have a hard time winning many customers for his tax-cut proposals.By Mike McNamee and Richard S. Dunham in WashingtonReturn to top