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GOP Wants to Trim Taxes, But Critics Ask If US Can Afford It

By Abraham McLaughlinSpecial to The Christian Science Monitor / December 5, 1994



WASHINGTON

NEWT GINGRICH wants Charles Heubener's two children to have a better life than their father has had. One way to do that: Give Mr. Huebener and other hard-pressed middle-class parents a triple tax break.

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The Gingrich-Republican tax plan - dubbed the ``American Dream Restoration Act'' - would cost the United States Treasury $107 billion over five years. Despite the cost, Republicans insist they can pay for it as part of their ``Contract With America.'' For working Americans, the Republican ``Dream'' could mean quick money in the bank. Heubener, a part-time Illinois farmer and the Clerk of the Jersey County Court, would get a $1,000 tax credit.

``Who wouldn't want an extra thousand dollars?'' he asks. ``I could put it to great use.'' Every family with an income under $200,000 a year would receive a $500 credit for each child.

The appeal of the GOP plan already has drawn the attention of Democrats in Congress and the White House. Democratic House Whip David Bonior says his party will offer its own tax cut for middle-income and working Americans in the next Congress - and that President Clinton is expected to be supportive.

The big question for both parties remains: How to pay for it? Pete Sepp of the Washington-based American Taxpayer's Union, cautions: ``Congress will have to pursue spending cuts with equal vigor'' to come up with $107 billion in savings. And, he says: ``Entitlements will have to be a part of that question.''

Cut taxes and spending, both

Richard Muller, a stockbroker in Kingston, N.Y., says: ``If the Republicans do the tax cut and cut [the government's] expenses, they'll do very well'' politically. But he warns: ``The key is cutting the expenses.'' Though they won't give specifics yet, Republicans are confident they can trim government outlays enough to cover the cost of the cut.

Taxpayers could benefit in three ways from the Republican plan.

First, a tax credit of $500 would be provided for each child. In Heubener's case, he would get one credit for his first-grader, another for his third-grader.

Second, they could invest in an ``American Dream Savings Account'' (ADSA). Taxpayers like Heubener would pay the ordinary taxes on up to $2,000 of income per year, but could then put those funds to work in an ADSA. Upon withdrawal, there would be no tax on the income earned, provided it was used for college tuition, retirement income, buying a new home, or medical expenses.

The third element of the Republican plan is to abolish the so-called ``marriage tax.'' Currently, if a husband and wife each make $40,000 per year, they may pay more in taxes than does an unmarried couple with the same income.

Price tag gets political

But, while Republicans stand poised to give about 50 million Americans a surprise bulge in their wallets and reap the political rewards of doing so, one thing stands squarely in their way: the plan's multi-billion-dollar five-year price-tag.

Here the politics get tricky. To pry $107 billion out of the federal budget, Republicans may be forced to tap entitlements. But, while Americans rue taxes, they seem fiercely protective of entitlements.

Forty-six percent of those polled by Greenberg Research after the election said that a middle class tax cut should be a top priority for the new Congress. But another recent poll by Hart/Teeter found that 66 percent of Americans oppose cutting spending on programs like social security, medicare, medicaid, or farm subsidies. And besides current costs, critics argue that the Republican plan is ``backloaded'' - filled with camouflaged expenses appearing several years later.

Because Congress has only a five-year budget window, it can conveniently ignore the long-term impact of a bill, explains Tom Ochsenschlager, a partner at Grant Thornton, a D.C. lobbying firm. He says:

``When baby-boomers start retiring in 15 years,'' and don't have to pay taxes on the interest they've been gaining, ``it is going to cost the Treasury a lot of [lost revenue].''

But one Republican staff member close to the process calls such long-term cost predictions ``notoriously inaccurate.'' He insists that when the package arrives on Mr. Clinton's desk, it will be paid for.

Then, because ``the Republican victory was so powerful and Clinton's stock is so low right now, [Clinton] would have trouble vetoing it,'' says Mr. Sepp, ``especially if 30 to 35 Democrats were supporting the plan.'' Republicans add that Mr. Clinton would be loathe to block a measure that has great appeal to such an important constituency - the middle class. Because as Heubener explains, a bonus of $500 or $1,000 might be just extra spending money for the rich, but the middle class may use the money to ``buy a better car, replace a kitchen appliance, or do something important like that.''