GOP Faces Lots of Arithmetic on Tax Cuts
IT is the great conundrum facing the Republicans in Washington: Can they make the numbers work?
Can they trim the federal government enough to pay for the tax cuts they want and eventually balance the budget as they promise?
This week will be critical in determining whether the digits coming out of GOP calculators are realistic or fanciful.
Republicans in the House have already outlined some $70 billion in cuts in entitlement programs. On Wednesday, the House Budget Committee will recommend roughly $100 billion more in cuts in other federal programs. Together, the trims are intended to pay for $189 billion in tax cuts to families, investors, and businesses.
Yet the cuts proposed so far are barely enough to pay for the promised tax relief. Closing the yawning federal deficit will take far more.
House Republicans continue to believe they can shrink the federal government enough to make it all work, though President Clinton and congressional Democrats have their own views. They argue that Speaker Newt Gingrich and his allies are simply trying to cut taxes for the wealthy at the expense of the poor.
Even some Senate Republicans argue against tax cuts at a time when the public wants the deficit reduced. Without the tax cuts, Congress would have to find $1.2 trillion in spending cuts to balance the budget by 2002, the year House Republicans have targeted.
The task is daunting. Prior to the Great Depression, Washington matched revenues and spending 75 percent of the time. Since 1948, Congress has balanced the budget only seven times -- and not once since 1969.
DESPITE Speaker Gingrich's mandate requiring the House to produce a balanced budget by 2002, there is little to impose the necessary discipline. The balanced budget amendment was defeated, and statutory requirements enforcing deficit reduction have proven largely ineffective.
James Thurber, a political scientist at American University in Washington, says that despite opinion polls suggesting public support for deficit reduction, the defeat of the balanced budget amendment indicates Americans still cling to their favorite government programs.
''The lack of will on the part of members of Congress to pass the balanced-budget amendment reflects a lack of will on the part of the American public to balance the budget,'' he says. ''You have to go to the tax code and entitlements to balance the budget.''
In fact, Congress is considering both cuts in entitlements and tax-code reforms. House Republicans have proposed cutting welfare by $35 billion and Medicare by $10.5 billion. Medicaid may be cut by a third.
On the Senate side, Republicans have sponsored $15 billion in cuts in federal agriculture subsidies. And a commission sponsored by Senate majority leader Bob Dole (R) of Kansas has recommended $495 billion in cuts over five years to welfare, medicare, and other entitlements.
On Friday, Mr. Dole also proposed eliminating the Education, Energy, Commerce, and Housing and Urban Development agencies, which could save about $70 billion annually, he estimates.
Several senators also have introduced legislation to replace the income tax with various alternatives, including a flat tax and taxes to spur savings and investment.
Peter Navarro, an economist at the University of California at Irvine, says such tax reforms, rather than tax cuts, attempt to meet the most pressing problem facing the economy.
''The fundamental problem is underinvestment in capital equipment, which is driving down wages,'' he says. ''Tax cuts risk overheating the economy. If Republicans really believe the rhetoric that a capital gains or middle-class tax cut will stimulate the economy, why do it now when [Federal Reserve Chairman] Alan Greenspan is hitting the brakes.''
Nonetheless, the major tax-writing committee in the House today will begin writing the legislation for $189 billion in tax cuts. The package includes:
*A $500 tax credit per child for families earning more than $15,000 but less than $200,000.
*A 50 percent deduction in the capital-gains tax for individuals, a capital-loss deduction for homeowners who sell their homes at a loss, and a reduction in the capital-gains tax rate for corporations from 38 percent to 25 percent.
*A gradual increase over five years in the Social Security earnings limit for those seniors who continue to work.
To help pay for these cuts in revenue, the House Budget Committee will unveil on Wednesday recommendations for cuts in discretionary spending, the part of the budget Congress approves on an annual basis.
Those will be combined with cuts other panels have proposed to such social programs as school-lunch subsidies.