THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Wednesday, August 7, 1996 TAG: 9608070011
SECTION: FRONT PAGE: A14 EDITION: FINAL
TYPE: Editorial
LENGTH: 84 lines
We have long had a debate in our party about which should come first. Growth advocates say, ``Oh, tax cuts first.'' Fiscal conservatives say, ``Oh, balanced budget first.'' I say they're both right.
- Bob Dole, unveiling his supply-side economic plan on Monday.
What I could never understand is why, if you just cut taxes, you'd have this big, big revenue increase. . . . And you don't have to make hard choices about spending.
- Bob Dole, questioning supply-side economic plans in 1995.
Republican presidential hopeful Bob Dole has unveiled an economic plan that promises tax cuts of $548 billion dollars over six years. A recent Wall Street Journal/NBC poll shows that 70 percent of Americans regard such proposals as campaign gimmicks. Skepticism is justified.
President Clinton campaigned on a tax cut but found such largess incompatible with the more-urgent business of deficit reduction. Candidate George Bush promised no new taxes; but faced with ballooning deficits, President Bush reneged.
The problem is less duplicitous politicians than an unrealistic electorate. We'd all like to pay less in taxes, but the public appetite for governmental services remains large. Most federal spending goes for just three items - defense, interest on the national debt ($296 billion in 1994) and entitlements.
Republican revolutionaries tried a frontal assault on entitlements. Though they proposed only to slow the growth of entitlement spending, the public objected - loudly.
For most of his career, Dole has been a dedicated enemy of deficit spending. He was deeply suspicious of the Reagan-era rosy scenario that promised tax cuts would pay for themselves when a stimulated economy produced increased tax revenues.
Dole was right to be dubious. When Reagan coupled tax cuts with a defense buildup, the result was a robust economy and the addition of $1 trillion to the national debt every four years. We're still trying to dig out from under.
But now Dole says he's going to bet not just the farm but the country on supply-side magic. His plan includes a 15 percent across-the-board cut in income taxes, a halving of the capital-gains tax from 28 percent to 14 percent, a tax credit for children, repeal of a surtax on the top 13 percent of Social Security recipients and an expansion of individual retirement accounts.
Instead of choosing from possible tax-reduction ideas, he's ordered everything on the menu. The resulting party could be a very pleasant party, but not if it's paid for with more borrowed money. Unfortunately, Dole's financing plan is another rosy scenario that will lead us toward national insolvency. For example:
Dole claims his plan will increase economic growth leading to a $147 billion tax windfall.
Capital-gains-tax revenue is higher this year than expected. Dole's plan assumes the same conditions for the next six years will produce an added $75 billion. But unless the business cycle has been repealed, benign economic conditions will not prevail in perpetuity.
Dole plans to fund almost half of his plan - $217 billion - through cuts in government spending, miscellaneous savings and asset sales. On the wish list are the elimination of whole departments, $60 billion from closing corporate-tax loopholes and $23 billion from tougher customs enforcement.
Many of these promises have been made before, but the savings haven't materialized. Existing programs and tax breaks have powerful constituencies who oppose their elimination. Dole says the combination of a Republican president and Congress would produce different results. But much of the so-called corporate welfare was written into law by Dole's GOP colleagues. He's responsible for the notorious ethanol subsidy, for example.
Hidden in the Dole plan is a more-modest program. The present congressional budget could support $122 billion in tax cuts. A number of Dole's suggestions add up to less than that amount: $13 billion for capital gains, $75 billion for the child-care credit, $14 billion for expanded IRAs and $13 billion for education and training credits comes to $115 billion.
This package might have a chance of being enacted and could produce benefits by spurring investment and producing a more-skilled work force.
But a 15 percent across-the-board tax cut costing $406 billion would risk reversing the downward trend of deficit spending. We prefer the notion of the Old Dole - balance the budget first, then cut taxes.
Dole isn't the first man to let the lure of the presidency cloud his good judgment, but a proposal that appears certain to lead to worsening deficits is disappointing coming from him. Dole has a long record of fiscal responsibility. Others may believe in pie in the sky. Dole knows better. by CNB