Real tax debate: how to spend funds

No presidential candidate is sticking his neck out far on taxes.

With the federal budget piling up ever bigger surpluses, any battle is over how and how much to spend of that money.

"For the most part, what the presidential candidates are talking about is all pleasure," says Joel Slemrod, director of the Office of Tax Policy Research at the University of Michigan Business School in Ann Arbor.

His office maintains a Web site (www.OTPR.org) that records and analyzes the tax-policy statements of all the presidential candidates.

Perhaps the boldest tax move came last week when Democratic hopeful Bill Bradley called for a crackdown on corporate tax shelters. Some experts say these cost Uncle Sam $10 billion a year.

But such a proposal is hardly politically risky. Closing those shelters would not visibly damage the pocketbooks of ordinary voting taxpayers.

Nor is it a particularly partisan issue. The Clinton Administration's Treasury Department has been pushing for such action. Vice President Al Gore is not likely to attack Mr. Bradley on this score.

Some Republicans also have been bothered by the rapid proliferation of these tax shelters in the past five years. Rep. Lloyd Dogget (R), of Texas, a rising star on the tax-writing House Ways and Means Committee, has introduced a bill to roll back the shelter binge.

What Washington and the candidates are eagerly anticipating, are the estimates of the budget surplus for fiscal 2000 and 2001 by the Office of Management and Budget (OMB) and the Congressional Budget Office (CBO).

The key number will be what's left after subtracting the surplus in the Social Security account.

All candidates have pledged to keep Social Security undamaged. So they don't want to be seen as spending any surplus Social Security revenues.

The CBO estimated Dec. 2 that tax and spending measures passed by Congress in its waning days of 1999 ate $17 billion of that Social Security surplus. But with the economy zipping along and revenues piling up, a new estimate could show a delicious usable surplus - a lollipop for hungry politicians.

The CBO will present its new estimate Jan. 26; the OMB, Feb. 7, with President Clinton's new budget.

Congress requires itself to use these estimates, usually the CBO numbers, in passing bills involving either taxes or spending. The numbers can support or dash the legislative and political aspirations of politicians in Congress or on the stump.

The White House is already talking about its 2000 agenda.

Chief of Staff John Podesta said last week that the tax program Clinton will outline in his Jan. 27 State of the Union address will be roughly the same as the $222 billion of tax initiatives the president recommended to Congress last year.

These got mostly nowhere in Congress. Clinton vetoed the $792 billion worth of tax cuts put together by House and Senate Republican leaders last summer. The GOP returned the favor, extending only relatively minor tax breaks that Clinton wanted.

Some Washington analysts see a similar deadlock this year.

"Nothing of any substance will pass," suggests Bob McIntyre, director of Citizens for Tax Justice.

One exception could be legislation to close corporate tax shelters. It could have "some legs," says Martin Sullivan, an economist with Tax Notes, based in Arlington, Va.

Former New Jersey Senator Bradley was a leader of the tax-reform movement that led to the Tax Reform Act of 1986. This act lowered tax rates, financing these cuts by eliminating many tax breaks, a few of them popular. Such reforms - though sensible to many tax experts - did not win Bradley or other supporters any political hurrahs.

Since 1986, Congress has added layer after layer of new complexities to the tax code as it tried to please campaign contributors and special constituent interests.

But the "spirit of 1986" has not revived in 2000, says Mr. Slemrod.

Even Republican candidate Steve Forbes is talking less of his proposed flat tax this time. It didn't get him far in his last presidential campaign.

Yet fundamental tax reform and simplification could make lower income-tax rates possible.

Congress's Joint Committee on Taxation last month estimated the tax breaks Americans will receive for the period from 2000 through 2004. The three biggest are popular - $416 billion for pension contributions and other tax-deferred retirement plans, $324 billion for employer health plans, and $301 billion for deducting mortgage interest costs.

There are hundreds of billions more in tax breaks. But no politician dares touch them.

(c) Copyright 2000. The Christian Science Publishing Society

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