TAX CUTS

Dole’s confusion is worrying and angering Republican tax-cutters. House Speaker Newt Gingrich insists the $ 245 billion is sacrosanct. Sen. Phil Gramm, Dole’s presidential rival, is trying to jump-start his campaign with it: during a debate on Oct. 11 in New Hampshire, he vowed he wouldn’t “cut deals” with Democrats — implicitly accusing Dole of getting ready to do just that. Dole is back on the $ 245 billion bandwagon, and the new chairman of the Finance Committee, Sen. Bill Roth of Delaware, is working as his lieutenant. “What we’re trying to do,” Roth has said, “is not just pass a tax cut; we’re trying to create more economic growth, jobs, and opportunity.”

But both Dole and Roth have to cope with the fact that some Senate Republicans want to trim the size of the tax cut, or even scrap it altogether.

Such a move would be a political blunder of the first order, blurring a primary distinction between Republicans and Democrats that works to Republicans’ advantage. Of course, short term calculations make it seem otherwise. Public opinion polls show that when presented with the option of balancing the budget or cutting taxes, budget balancing wins. In a September NBC/Wall Street Journal poll, 37 percent said the most important issue for Congress to address is a balanced budget. Only 13 percent said tax cuts. Even political consultants such as Frank Luntz, who advises Gingrich, are preaching this message.

There’s one big problem with picking a balanced budget over tax cuts: It’s a false choice. The public wants both. Besides, tax cuts are likely to spur the economy, and thus produce more tax revenue to reduce the budget deficit. Republicans would be foolhardy to ignore the fact that while there are many deficit hawks in America, there are millions more people who believe their taxes are excessive. When Gallup asked people in December if they thought their taxes were “too high” or “about right,” 66 percent said “too high,” the strongest response to that question since December 1969. More recently, when pollster Ed Goeas asked if Republicans should stick with plans to cut taxes, 54 percent said yes and only 32 percent said no. The most revealing finding, however, comes from a September Los Angeles Times poll in which 62 percent supported smaller government with fewer services, 27 percent larger government with more services.

All these poll results underscore the message of last year’s House and Senate victories: a desire for less government through spending reductions and tax cuts. Delivering the tax cuts is the hard part. Dole has delayed a Finance Committee vote on tax cut legislation until he’s confident he has the votes of the 11 Republicans, since all nine Democrats are expected to oppose the bill. Meanwhile, GOP defectors are waiting in the wings. Gramm, who replaced Bob Packwood on the committee, promised that he is “not going to vote for any reconciliation bill that does not have the full $ 245 billion tax cut.”

Among GOP moderates, there are at least five senators who want a pared-down tax cut as a way of getting more deficit reduction. Frank Murkowski of Alaska, for example, wants to take the $ 170 billion in savings from balancing the budget by 2002 and use it to pay off the national debt.

Making the issue even cloudlet is the Finance Committee’s version of the tax cut legislation. An Oct. 10 draft contained a temporary child tax credit for families with incomes below $ 110,000 and replaced the current $ 2,350 dependent exemption with a $ 500 tax credit. The net effect of this proposal would have been to raise taxes for millions of families once the tax credit expired in 1998.

The Christian Coalition and the Family Research Council, two key GOP constituencies, were furious when they learned of this the following day, and Dole’s staff dumped it almost immediately. Whatever happens, Republicans should be concerned: In a recent Times Mirror poll, they trailed President Clinton by nine percentage points on who has a better plan for middle-class tax relief.

Making matters worse, Republicans have also been spooked by the Democratic mantra that they are cutting Medicare by $ 270 billion to finance a $ 245 billion tax cut for “the rich.” President Clinton embrhced this theme in an Oct. 7 radio address, arguing that Republicans were actually raising taxes by $ 148 billion. Sen. Robert Bennett, a conservative Republican from Utah, conceded to me that the “perception of linkage between the Medicare savings and the tax cut is creating enough of a stir in the polls that some senators are saying ‘let’s delay the tax cut.'”

Lacking a convincing rebuttal, GOP Sens. Larry Craig of Idaho and Spence Abraham of Michigan proposed a $ 177.2 billion four-year tax cut package, designed to include House tax cut provisions that would have been squeezed out in a seven-year, $ 245 billion package.

This was abandoned, however, when it looked like waffling (Gramm called it ” one of the worst ideas I have heard”), only to be favorably received by some House members at the Oct. 12 House-Senate leadership meeting. This prompted senators to reconsider the Craig-Abraham plan, now transformed into a $ 244.5 billion tax cut over five years — not much of a savings there.

Amidst the disarray, a few GOP senators, Rod Grams of Minnesota and Connie Mack of Florida, have gone on the offensive, making the economic case for tax cuts. But many others are on the defensive. “It is distressing to me that increasingly Republicans believe George Mitchell’s interpretation of the 1980s,” laments Bennett.

That interpretation holds that President Reagan’s tax cuts produced the mammoth deficits. And the lesson from it is that tax cuts shouldn’t be considered until the deficit is restrained. But there’s a catch that Mitchell never spelled out; namely, that a party that puts off popular tax cuts while trying to narrow the deficit by spending cuts will soon be voted out. That’s what happened to Democrats in 1994 after they did only the first part, raising taxes. If they’re not resolute on cutting taxes now, it could happen to Republicans in 1996.

by Matthew Rees