Tax cuts: What's behind the partisan posturing

Election-year politics have both sides staking out bargaining room. Look for a fall compromise.

The tax-cut debate in Washington has become almost unreal.

"Kind of an Alice in Wonderland atmosphere," says Fred Ross, a budget consultant for the Washington Research Group.

House Ways and Means Committee Chairman Bill Archer (R) of Texas last week introduced a bill chopping $864 billion in taxes over 10 years. Senate Republicans are developing a competing plan that slashes roughly $792 billion over 10 years.

Probably the House and Senate will pass these bills before the August recess.

But they won't become law. President Clinton will veto any such bill, as the Republicans know.

Meanwhile, liberally inclined think tanks issue scholarly reports blasting the Republican proposals for giving most of their tax relief to the already well-to-do.

"House GOP targets tax cuts: Rich, richer, richest," proclaims Citizens for Tax Justice (CTJ), referring to the Archer plan.

According to CTJ director Bob McIntyre, 60 percent of the income-tax rate cut will go to the best-off tenth of all taxpayers. So will 91 percent of the cut in capital-gains taxes and virtually all of the estate-tax cuts.

"They [Republican leaders] are just doing it for show," says Mr. McIntyre. "It will not happen anyway."

So what's the score? Why the fuss? Earlier, Archer even trotted out a fife-and-drum corps, red, white, and blue balloons, and tiny American flags to announce the basic components of his proposal to the press.

These are "message bills," reckons Martin Sullivan, an economist with Tax Notes, in Arlington, Va. They're Republican wish lists.

"As the 2000 election draws closer, the Republicans do not want to lose their identity as the tax-cutting party," he notes.

Further, the Republicans argue that it is necessary to deprive Washington and the Democrats of money that could be blown on program expansions.

"We believe the people can spend their money more wisely than the bureaucrats in Washington," Archer told the media.

It's also political fund-raising time for the parties, notes Mr. Ross.

The biggest beneficiaries of Archer's tax cuts would be those most likely to give to Republican politicians.

Another goal of the tax legislation is to stake out tax turf for a possible bargaining session with the White House.

Though criticizing the Republican tax cuts as being too large, Clinton often indicates there is room for a "sizable" tax cut.

The experts suspect a compromise deal will be hashed out in September or October involving perhaps $200 billion in tax cuts plus some extra spending sought by both the president and by Republicans in Congress.

"It will look a lot like the Clinton plan," predicts Ross.

With the budget in surplus, the president's veto power gives the White House extra clout. If no deal is reached, the surplus goes automatically into saving Social Security and slashing federal debt - two goals of Clinton.

Indeed, Iris Lav, an economist with the Center for Budget and Policy Priorities in Washington, says no tax cut at all would be "the best outcome this year."

One reason for that view stems from the laws of mathematics. Since the prosperous pay most of the nation's income tax, almost any type of tax cut benefits mostly those in upper-income brackets.

Low-income workers pay little if any income tax, but do pay a goodly chunk of their income in Social Security and Medicare tax.

Further, Ms. Lav's center calculates that after locking up the surplus revenues of Social Security to "save" the system, there will be little left over for tax cuts.

The Congressional Budget Office estimates a $996 billion surplus over 10 years. Lav says that's a "mirage" arising from unrealistic assumptions. A more realistic surplus estimate is $110 billion over 10 years, she says.

But there may be more money available.

The Congressional Budget Office just upped its estimate of the surplus this fiscal year to $120 billion. Budget expert Ross says $125 billion to $130 billion, maybe $140 billion. If Ross is right, Congress could have it all - extra spending plus tax cuts.

(c) Copyright 1999. The Christian Science Publishing Society

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