FEAR NOT THE TAX CUT

We’ve seen this movie before, so we know our protagonist is being set up for an ambush. The road sign is backwards; Dole’s tax-cut map is accurate. And if Dole would take a closer look at that friendly MP, he would discover his true identity: Clinton-sympathizing Wall Street Journal fifth- columnist Albert R. Hunt.

Ignore him, Bob!

But read him carefully first, for Hunt’s June 6 Journal essay called ” The Tax Cut Trap” actually does the Dole campaign a genuine service. It is the perfect “respectable” gloss on the Clinton administration’s likely critique of any broad-scale Dole tax proposal. And as time goes by this summer, that critique is certain to be echoed and amplified by “sophisticated” journalists everywhere, schooled as they are to dump on any election-year tax idea as a mere gimmick. Or worse.

Here’s the Hum-style case against tax cuts.

The economic rationale. There is no rationale, says Mr. Hunt, only discredited supply-side “snake oil.” It’s true, as he points out, that inflation, unemployment and interest rates are now quite low and that the federal deficit has been sharply reduced since 1993. But it is not so evident, as Hunt implies, that President Clinton and his party deserve the lion’s share of credit for these accomplishments. And it is certainly untrue, despite administration cheerleading, that the American economy Clinton has supervised is “the healthiest in nearly three decades.” Overall economic growth is relatively weak: weaker than the post-World War II average, weaker than in the last five economic expansions, weaker than in the 1980s, and weaker than in the final year of George Bush’s presidency.

Clinton-era American incomes remain fatuously stagnant. Median household income has declined since 1992 if you adjust for inflation. Median family income is fiat. Real “total compensation” — average wages, salaries, and benefits — went up just 0.4 percent in 1995, the worst such number in more than 14 years.

Taxes are not irrelevant to these problems. High taxes depress growth. Low growth depresses income. And higher marginal rates penalize income growth directly. As a share of gross domestic product, taxes (federal, state, and local all together) hit a historic high last year. Federal taxes, now effectively double what they were for the average family in the early 1960s, absorbed a virtually unprecedented 20.4 percent of gross domestic product in 1995. That typical family now spends more on total taxes than it does on food, clothing, and shelter combined. That typical family is overtaxed. And it is financially pinched. Is that not a legitimate “economic rationale” for federal tax cuts?

The “fairness” issue. AI Hunt makes great sport of the 15 percent, across-the-board federal income-tax cut now under discussion inside the Dole campaign. It would be a “considerable redistribution of income to the more affluent,” he writes, and would “sock it to the middle class.” The Clintonistas predictably talk like this too. But what exactly are they talking about? Earnings exempted from taxation aren’t “redistributed” anywhere, strictly speaking. And if everyone gets a cut, how could anyone be getting “socked”?

There’s nothing particularly “fair” about the federal tax-rate schedule Clinton inherited from Bush (and has now made even more “progressive”). Americans with taxable incomes between roughly $ 23,000 and $ 57,000 pay an effective federal tax rate higher than the one paid by people earning more than twice as much (if you count payroll taxes). The details of Bob Dole’s possible 15 percent cut have yet to be revealed. But if such a cut were somehow applied to payroll as well as income taxes, it would correct this ghastly anomaly. And immediately save each middle-income family a minimum of several thousand dollars each year. Hunt may sniff at such sums as paltry. Most Americans would not.

The deficit. Hopes for a balanced budget, Hunt says, would entirely disappear. The White House loves this argument. “If the Republican party no longer worships on the altar of the balanced budget,” Clinton press secretary Mike McCurry quips, “that’s news.” McCurry, of course, is unfamiliar with that particular church; Democrats visit only as tourists.

Look. Dole’s putative 15 percent cut would cost the government about $ 90 billion a year. No Dole partisan pretends that such a cut would “pay for itself.” But if it increased GDP growth by just one percentage point — one- fourth of the average annual growth that occurred after the Reagan and Kennedy tax cuts — the Treasury would, by most expert estimates, recover well over half that “lost” revenue. And room already included for tax cuts in the balanced budgets approved by the current Republican Congress would make up most of the rest. Solved.

The partisan effect. This is where the Clinton White House and Hunt finally part company. Slightly. Professional Democrats do not pretend to be concerned for Dole’s political future or his immortal soul. Hunt, with ostentatious disingenuousness, worries over both. Taxes “are not a high priority for the vast majority of Americans,” he writes. Why, then, should Dole throw aside the deficit-cutting principles he has “championed for years” and lose his “credibility” (and, by implication, the election) in the process? In other words, tax cuts are a political loser.

President Clinton doesn’t think so. He has just proposed a means-tested, two-year, $ 1,500 tax credit for higher-education expenses. He wants us to believe, as he recently proclaimed at Princeton University (annual tuition, room, and board: $ 29,000), that this munificence will grant “every single solitary soul in this country the chance to be most fully alive.” It won’t, of course. It’s a narrowly targeted tax advantage that will, by increasing demand for higher education, likely raise tuitions a corresponding amount.

Still, Clinton’s tax credit sounds good. People will like it. And Clinton’s advancement of it indicates that Hunt is completely, fabulously wrong when he insists that taxes aren’t a big issue for voters. Poll data refute Hunt, too. In a January Gallup poll, 83 percent of respondents said that federal taxes were a “top priority,” a “high priority,” or “very important” in their decision about whom to choose for president. In April, Gallup asked respondents whether they thought their federal income taxes were “too high” or “about right.” The answer was “too high” by almost two to one.

Obviously, then, a Dole tax cut that promised palpable benefits to as many Americans as possible would help his presidential prospects this year. And there are no serious policy grounds on which to object to such a tax cut. Dole should politely reject those of his “well wishers” who advise him otherwise. He should move soon, and swiftly, and decisively. For when Al Hunt attempts to ambush him with such friendly counsel, Dole must really be onto something.

David Tell, for the Editors