THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Friday, April 7, 1995 TAG: 9504070035
SECTION: FRONT PAGE: A12 EDITION: FINAL
TYPE: Editorial
LENGTH: Medium: 64 lines
The House has now made good on its Contract promise to cut taxes on families, businesses, Social Security recipients and capital gains. But what you see is not likely to be what you get when the Senate gets to the tax question.
Given the staggering load of debt and deficit that afflicts the federal government, tax cuts don't belong at the top of any rational priority list. but if cuts we are going to get, some make more sense than others. Wherever possible the goal should be to encourage work, stimulate investment and spur economic growth.
Economists concerned with those issues think the Contract package is contradictory and poorly targeted. Robert Shapiro of the centrist Progressive Policy Institute faults the bill for being designed ``political tacticians, not by businesses or economists.'' Henry Aaron of the Brookings Institute worries that the bill will widen the gap between rich and poor.
William Niskanen, an economist with the conservative Cato Institute says ``there's not a single part of this bill that I consider an improvement over the current system.'' And even though Martin Regalia of the U.S Chamber of Commerce supports capital gains reform, he says ``as an economist, I cannot say that a change in the capital gains rate will have any measurable impact on savings and investment.'' What should the Senate do?
A widely disliked tax discourages work by some Social Security recipients and should be removed.
However, a means test on Social Security recipients should not be repealed. The system must be reformed to avoid bankruptcy. Even the AARP's John Rother admits reform will mean ``a little higher taxes for some, a little less benefits for some,'' a later retirement age for all.
Family businesses deserve a higher deduction on estate taxes. It makes no sense to force owner-heirs to sell productive businesses in order to raise enough cash to pay taxes when their parents die.
Indexing capital gains is simple fairness. Forcing investors to pay taxes on phantom gains that merely reflect inflation discourages investment.
The Alternative Minimum Tax is a nightmare, but some less onerous mechanism is needed to prevent profitable corporations from escaping all taxation. That's unfair to taxpayers with no loopholes to exploit and breeds cynicism.
Neutral cost recovery is supposed to give businesses a break in depreciating plant and equipment, but it needs careful study. Some analysts believe the House version is an accident waiting to happen. It could unintentionally cost the government tens of billions.
If a middle-class tax cut is to be passed, it ought to be confined to the middle class which does not include families earning over $100,000. A majority of House members, including over 100 Republicans, agreed with this view but didn't get to vote on it.
Finally, the final tax bill must make tax cutting contingent on a budget that leads to balance by 2002, as the Contract promises. Language to that effect in the House version has no teeth. It is, therefore, closer to wishful thinking than to a statutory requirement.
Tax cuts that swell an already burdensome deficit will hamper growth and investment, not enhance it. That's not fiscally acceptable, no matter how politically appealing. In the words of Rep. Charles Stenholm, ``Tax cuts with borrowed money is no bargain.'' by CNB