As Elections Near, Deficit Dims as Key GOP Issue

Tax cuts or a balanced budget?

Republican leaders balk at the question, calling it a false choice. Tax cuts, they argue, are an important step toward reducing the deficit and the size of the federal government.

But as the party's presumed presidential nominee, Bob Dole, tries to close a yawning gap with President Clinton in opinion polls, a debate is quietly intensifying within GOP circles over economic-policy priorities.

The party continues to fight for a balanced budget in Congress, but the issue no longer seems to be the top priority it was a year ago. At the annual gathering of the state GOP chairmen in Washington this weekend, for example, tax cuts figured prominently in speeches by Mr. Dole and House Speaker Newt Gingrich. Balancing the budget followed fourth or fifth down the list.

That makes some state party chiefs cautious. When asked whether voters in their states would prefer tax cuts or a balanced budget, most said the latter.

"I think balancing the budget resonates," says Randy Enwright, executive director of the Florida Republican Party. "People definitely want the budget balanced. But I don't see it as an either-or question. It depends on what we're talking about and how it's laid out."

Dole advisers are more firm. They argue that Dole, despite his career-long suspicion of supply-side policy, must adopt the kind of pro-growth, tax-cut message that has been the cornerstone of Republican electoral success since the Reagan era.

The candidate was scheduled to sit down yesterday with advisers to consider a list of recommendations presented by a panel of conservative economists enlisted by the campaign. Those proposals reportedly include: an across-the-board reduction in income-tax rates; cutting the capital-gains rate and so-called marriage tax; and pushing tax-free savings accounts for medical care and education.

The debate over the size and scope of tax cuts is important. It goes to the heart of the Republican Party's core message and could present a shift in direction. Even though House Republicans called a package of tax cuts the "crown jewel" of their Contract With America, balancing the budget been the overriding goal of the GOP-led Congress. If the Dole campaign makes tax cuts the centerpiece of its economic vision, it will signal a shift in emphasis - yet another turn in what has been a two-decade debate within the GOP over taxes and deficits.

It will also mark a shift in the candidate's views. Supply-siders in the Dole campaign argue that generous tax cuts will speed economic growth and swell federal coffers. That's the reasoning Dole rejected in the early 1980s when President Reagan engineered his landmark tax cuts. While the windfalls of large tax cuts are speculative, furthermore, their immediate cost is not. The proposals being considered by Dole could cost hundreds of billions of dollars - money federal bean-counters currently include in their budget estimates.

There are other costs to large tax cuts as well. They could seriously limit Washington's ability to address such urgent issues as Medicare reform. New government estimates due out this week will show that the health-care entitlement is significantly more cash-poor than previously thought. Cutting revenues while preserving Medicare will be tricky.

Still, those who advocate large tax cuts argue that this this a crucial difference between Republicans and Democrats, between the party of small government and the party of big government. If you cut taxes, they argue, not only are you letting people spend their own money, you are forced to cut the size and costs of the bureaucracy in Washington.

"The question is the size of the tax cut," says Chris DePino, chairman of the Connecticut Republican Party. "My view is that you balance the budget and do a modest tax cut consistently over a long period of time. But if that's the debate, it's only happening in the Republican Party."

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