A big new tax cut? Public shrugs

Who could imagine that in this era of trillion-dollar surpluses, it would be hard to sell Americans on a generous, broad tax cut?

Certainly Republicans don't think so. They've made it the centerpiece of their agenda this year, and are likely to parade it prominently in the 2000 elections, as well.

But the promotion of tax cuts - long the core issue of Republicanism - could be losing its potency. Not only is it rejected by President Clinton, who wants to save projected surpluses for Social Security and Medicare, new retirement accounts, and military and other programs. But, curiously, Americans aren't fully convinced the time is right, either.

Polls show the public has consistently supported the president's approach of targeted, limited tax cuts over the GOP plan of an across-the-board cut. And historically, people view broad tax cuts with skepticism, believing that they mostly benefit the rich.

"Tax cuts at the federal level simply aren't credible," says Karlyn Bowman, a public opinion expert at the American Enterprise Institute. "This is going to be a very hard sell."

When considering tax cuts, the question Americans ask themselves is: What are the alternatives? says Andrew Kohut, director of the Pew Research Center in Washington. A Jan. 18 poll by Pew showed 42 percent of the public favored the Democrats' tax plan, versus 32 percent for the Republican one (23 percent answered "neither" or "don't know").

If a tax cut means endangering entitlement programs like Social Security and Medicare, that's not a choice they want to make, says Mr. Kohut. It's not that people aren't interested in lower taxes. "They put fixing problems on a higher plane," he says.

Where the differences come in

The Republicans are sensitive to this. They're basically in step with Clinton's plan to set aside 62 percent of the projected budget surpluses over the next 15 years for Social Security, though major differences remain over how to reform the retirement system.

Yet Republicans like Sen. Pete Domenici (R) of New Mexico, chairman of the Senate Budget Committee, warn that unless most of the rest of the surplus is returned to taxpayers, Washington will spend it.

Without significant budget cuts elsewhere, a major reduction in taxes would exclude Clinton's plan to use 15 percent of the surpluses to shore up Medicare and another 12 percent to subsidized individual retirement accounts. Advocating a tax cut instead of a Medicare infusion could backfire on Republicans, says Ms. Bowman, who cautions that Americans "care very much about Medicare."

Part of the reason for people's tepidness on tax cuts is their economic well being, adds Stan Collender, a budget analyst at Fleishman-Hillard, a consulting group here.

In the past few years, interest rates have come down, inflation has been low, and wages have risen. This is having an impact on people's day-to-day buying and budgeting habits.

"The average person has more money in their pockets," says Mr. Collender. "It's not like people are being squeezed as much as they were before. In effect, they've already gotten their tax cut."

Additionally, Americans remember the last across-the-board tax cut: about 25 percent under President Reagan. Coming at a time of a military buildup and recession, the reduction contributed to huge deficits. And even though Bob Dole tried to save his 1996 presidential campaign by advocating a 15 percent tax cut, it didn't excite the electorate.

"The Republicans think it's just like Ronald Reagan in 1981. You promise to cut taxes and you get elected and reelected. Not true," says Collender.

But Republicans stress this is not the deficit landscape of the Reagan years: It is a historic period of budget surpluses. And under Senator Domenici's plan, they aim to introduce the tax relief gradually, starting with a 4 percent cut and moving to as much as a 15 percent drop over a decade. House Republicans this week introduced a plan for a 10 percent tax reduction.

Republicans also maintain that the tax burden on the average American is at an all-time high, higher than during World War II.

But that's not the message the White House is broadcasting. According to Jack Lew, director of the Office of Management and Budget, "the typical family of four has seen its tax burden go down, not up."

Depends on whose arithmetic

The discrepancy comes in different definitions of a typical taxpayer. Republicans use average income and talk about individuals - that would include the income of people like Microsoft billionaire Bill Gates. Democrats use median income and talk about a family of four. That would exclude the superrich and includes tax credits for children.

Under the White House interpretation, there's less pressure for a big tax cut. This year's budget proposal reflects that philosophy. The credits offered are "tokenism," says Robert MacIntyre, director of Citizens for Tax Justice. They include items such as $1,000 for long-term health care, $500 for stay-at-home parents, and credits for buying fuel-efficient cars.

But Bowman, at the American Enterprise Institute, says that a broad tax cut, while hard to sell, is not impossible. The public is just beginning to believe the surpluses are real. A new Los Angeles Times poll shows that once Social Security is taken care of, most Americans favor an across-the-board cut.