Playing Pin The Tax Policy On The Donkey

Democrats are finding that developing a coherent tax policy is a bit like their pursuit of the Presidency. They know where they want to go; they just don't know how to get there.

The latest example of this casting about is a proposal, offered on May 6 by a group of Democrats, to shift billions of dollars in taxes from working-class families to the rich. Democratic strategists sense that President Bush may be vulnerable on two pocketbook issues--the recession and "tax fairness." Bush's own tax agenda consists of little beyond another stab at reducing the levy on capital gains. Democrats figure if they can put together a policy that they can sell both as a spur to long-term economic growth and as a break for working people, they'd finally have an issue they could ride to the White House.

Easier said than done. There are nearly as many tax programs as Democrats. There's the soak-the-rich crowd. Another group wants to raise gasoline taxes but can't agree on what to do with the money. A third bunch favors broad new tax incentives for savings. Finally, there's a group of back-benchers whose primary interest is extending tax breaks for research, employer-paid education expenses, and low-income housing--all of which are due to expire this year. "The leadership is being pulled in a lot of different ways," says one House Democratic aide.

CASH BACK. Party leaders so far seem content to let 100 flowers bloom. The most dramatic offering to date was cooked up by Representatives Thomas Downey (D-N. Y.) and David Obey (D-Wis.) and Senator Albert Gore (D-Tenn.), a likely Presidential contender. They would convert, for children under 18, the $2,300 personal exemption to an $800 credit, payable in cash to families with too little income to owe taxes. A family of four, earning $40,000, would enjoy a $910 tax cut under the plan.

The lawmakers would pay for the $20 billion in new breaks by raising the top tax rate on adjusted gross income of more than $130,000 from 31% to 35%, and by imposing an 11% surcharge on income above $250,000. The goal is simple: Dole out goodies to traditional Democratic constituencies while hammering Bush for favoring the rich. "The Reagan party is over," says Downey, who says his bill gives "tax relief to those who need it most--working families with children."

Publicly, leaders are full of praise. Representative Richard A. Gephardt (D-Mo.) and Senate Majority Leader George J. Mitchell (D-Me.) endorsed the outlines of the plan. House Speaker Thomas S. Foley (D-Wash.) called it "interesting." But Democrats last month passed up an opportunity to provide middle-class tax relief when the Senate, reluctant to take on Bush, crushed Senator Daniel P. Moynihan's (D-N. Y.) scheme to cut Social Security payroll taxes. Privately, the Downey-Gore plan has raised many of the same doubts. Says a top Democratic aide: "This thing is 99 and 44/100ths politics. It's not going anywhere."

Senate Finance Committee Chairman Lloyd Bentsen (D-Tex.) has another agenda--restoring and expanding tax breaks for individual retirement accounts. While Gore and Downey aim at working-class families, Bentsen is offering tax breaks for the solidly middle-class voters who can think about saving.

Bentsen won't say how he would pay for the new IRAs, which would cost nearly $26 billion over five years. In part, that reflects normal caution, but it also shows how Democrats are still spooked by the "read my lips" antitax rhetoric of the 1988 Presidential campaign. "Half the Democratic brain is still cowed by the `no new tax' pledge," says a party tax strategist. "The other lobe says: `This is bull. We have to take Bush on.' "

Bentsen's House counterpart, Ways & Means Committee Chairman Dan Rostenkowski (D-Ill.), has yet another view of things. Rosty doesn't really want any tax bill this year. But he may be the only Washington politician still talking publicly about the need for more deficit reduction. He'd do it by raising the gas tax.

'GOOFIER THAN HELL.' Talk of such a tax hike is already floating around Washington. Foley and House Public Works Committee Chairman Robert A. Roe (D-N. J.) would like to see an increase of a nickel a gallon, to 24~, to help pay for a big new highway bill. Rostenkowski, who thinks an additional levy would spur energy conservation, says he'd back such an increase, but only if accompanied by an additional 5~ that would knock about $5 billion a year off the deficit. But most other Hill Democrats, still burned out from last year's marathon budget battle, aren't willing to reopen the deficit debate. A Senate Democratic staffer says the chairman's position is "goofier than hell."

Rostenkowski aside, most Democrats want to cut somebody's taxes. But last year's budget agreement forces them to raise other taxes to pay for the largesse. That's what has them traumatized.

This confusion isn't entirely bad. The good news is that Democrats are snapping out of their fiscal-policy funk and trying to develop a tax plank for the 1992 campaign. The bad news is that their initial forays have GOP strategists looking forward to a new assault on those "tax-and-spend" Democrats. It's enough to do a President's heart good.