Congress Searches For Win-Win Trim
Can Washington cut taxes and the deficit?
Whether you're a motorist, parent, retiree, college student, or small-business owner, you can rest assured that somebody in Washington wants to fatten your wallet. It's an election year, and many proposals pending in Congress contain tax cuts.Skip to next paragraph
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But this year is a little different. Lawmakers from both parties have vowed to balance the federal budget. And Steve Forbes, the publishing mogul who recently sought the Republican presidential nomination, warmed many voters to the idea of simplifying the nation's tax system.
The trouble is, if this smorgasbord of tax cuts offered by Congress and President Clinton passes, neither of these goals will be addressed. Instead, experts say, the deficit would swell or hold fast, and the tax code would become even more convoluted.
In the scramble to offer voters an election-year snack, it seems, lawmakers are shunning long-term reform.
"Most of these tax proposals are just attempts to tinker at the margins," says Pete Sepp of the American Taxpayers' Union, a Washington group that advocates lower taxes. "Someday, the tinkering will have to end."
The list of tax cut proposals before Congress is already long, and seems to get longer by the day. It includes plans to repeal Mr. Clinton's 4-cent increase in the gasoline tax, allow families to deduct $500 for every child, approve the creation of tax-free medical savings accounts in place of traditional Medicare, cut payroll taxes for low-income workers, and offer $5,000 deductions for families that adopt children and $10,000 deductions for college tuition costs.
In addition, a GOP proposal released this week would tie a $1-an-hour increase in the minimum wage to a package of tax cuts for businesses. The plan would compensate employers who hire at-risk youths or welfare recipients and exempt workers from being taxed on money their employer pays for college tuition.
Still no free lunch
But these proposals wouldn't come cheaply. Under the 1990 Budget Enforcement Act, which was renewed in 1993, any legislation that increases the generosity of an entitlement program or lowers tax revenue is supposed to be balanced by a corresponding revenue increase.
So, buried in the fine print of these proposals are plans to put dollars back into the federal treasury. They include closing corporate tax loopholes, attacking Medicare waste and fraud, selling off unused broadcast spectrum, slashing the Department of Energy's budget, forcing thrifts to replenish a fund to secure their deposits, and extending an excise tax on airline tickets.
In the final analysis, says Robert Reischauer, former director of the Congressional Budget Office, these tax measures are not really cuts, but ways of redistributing the tax burden. Each offsetting cost lawmakers come up with, he notes, is another savings plan that could be used to shrink the federal deficit. Moreover, he argues, some tax cuts are disingenuous, particularly the provisions in Clinton's 1997 budget. If the deficit does not shrink as fast as the president predicts, the tax cuts would be automatically rescinded in three years.
Winners, but losers too
Another problem, Mr. Sepp says, is that each type of tax cut creates two new constituencies: one that benefits from it and another that does not. Whenever these tax breaks are challenged, he contends, the debate will create forms of "class warfare" that pit homeowners against renters, childless families against those with children, college students against low-wage workers, and people with large medical expenses against those without.
Yet Sepp argues that some cuts are better than none, even small changes like the gas tax repeal. "If cutting the gas tax is the only way a majority of taxpayers can attain some tax relief, then it's worth trying," he says.
Observers cite three reasons why this piecemeal approach has supplanted larger political goals.
First, Reischauer says, there is the obvious political motive. He describes the gas tax repeal, proposed by Senate majority leader Bob Dole, as "blatant pandering in an election year."
Second, he says, is the new political geography. As voters grow more skeptical of government programs, tax incentives are the only way left for lawmakers to effect social changes they deem worthy, like encouraging adoptions and higher education.
The third reason, Sepp says, is that it is easier for voters to see the tangible benefits of a gas tax repeal than the "theoretical benefits" of a balanced budget or a simplified tax system.