Online NewsHour: Taxes

TAXES

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August 5: Bob Dole unveils his economic plan.
March 17:Paul Solman reports on the history of taxes--and anti-tax sentiments.
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Perhaps as inevitable as death and taxes is the political allure of the tax cut. As long as there is bureacracy, waste, and the reviled IRS, the surest way for politicians to appeal to voters (and lobbies) is to offer "tax relief."
Malcom "Steve" Forbes and his flat-tax plan, though was accused of lacking credibility, caused a considerable ripple in the 1996 Republican primaries. With appealing simplicity, the plan called for a flat 17% income tax, with exemptions for families promising no taxes on the first $36,000 of household income. Skeptics were quick to point out obvious advantages for the upper-class, and questioned its fiscal viability. Forbes' own tax liability, should the plan be adopted, would be reduced by over $2 million per year.
Republicans have long considered themselves the party of tax cuts. Ronald Reagan's supply-side economic measures produced massive tax cuts and economic prosperity, but also a (massive) increase in the federal debt. And while Reagan was widely revered, greater public concern with the debt today has fostered suspicion of supply-side policies.
Bob Dole and avowed supply-sider Jack Kemp have made a 15 percent across-the board tax cut a centerpiece of their campaign, promising to end the IRS "as we know it." Included is a $500-per-child tax credit and a halving of the capital gains tax. Dole insists that the cuts will be paid for by slashing government spending and stimulating economic growth, with the help of a Republican Congress. Success of the plan, however, assumes two things: that deep spending cuts, however unpopular, will be made, and that sufficient economic growth can be sustained to support the corresponding loss in revenue. Jeff Faux of the Economic Policy Institute scorned the plan, calling it "Reaganomics II" in a debate on the NewsHour with Jim Lehrer.
The plan is full of contradictions. On the one hand, it wants to balance the budget. On the other hand, it reduces the tax revenues of the government. The plan talks about savings, and yet, the tax cuts would encourage consumption. The plan purports to help the middle class, but most of the benefits will go to the upper 10 or 20 percent of the population...there's no reason to believe it would work in the 1990's when it didn't work in the 1980's.

Proponents insist that huge spending increases by the Democrats in Congress during Reagan's two terms are responsible for the buildup in the national debt. Republicans insist that their cost-cutting attempts have been foiled by Clinton and the Democrats, and that teamed with a Republican president, they could pay for the loss in tax revenue, which Dole estimated at $548 billion over 6 years.
The "Contract with America" had promised broad tax breaks for a key element of GOP support: small business. When passage of the minimum wage bill became imminent, Republicans scrambled to attach a package of small-business tax cuts that would alleviate some of the costs of the higher wage. Some of the provisions, which were successfully offset by phaseouts of other programs:

An increase from $17,500 to $25,000 in the amount that small-businesses could write off purchases of new equipment.

A simpler pension plan that makes it less expensive to offer pension plans to employees.

Easing the requirements that small businesses must meet to qualify as a subchapter S corporation--a form of organization suited to small businesses.

Research and Development tax credits, credits for rare disease medical research, and a tax exclusion for workers who receive tuition assistance from their employers.

In 1995, Congressional Republicans planned sweeping tax cuts as part of that year's deficit-reducing budget-reconciliation bill. Democrats charged that they were disproportionately to the benefit of the rich and scored political points. As a result, the fiscal 1997 version contains barely half the amount. Whether or not the Republicans will renew the attempt in the next session will rest on the success of Senator Dole's plan, and on public opinion. Though tax cuts remain as appealing as ever, voters have begun to ask how they will be paid for. Congressmen are, in the end, beholden to their constituents, and distinguishing which federal government to slash and which one to save remains as difficult as ever.

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