The man elected president in November 2000 will face an unprecedented situation
with regard to the national budget: a projected surplus of $4.6 trillion through 2010.
Even if the $2.4 trillion social
security tax component is put in a 'lock box' and left untouched, that still leaves
the government taking in some $2.2 trillion more than it spends.
Though some doubt the surplus will materialize as fully as estimated (see below),
the Treasury Department released impressive numbers in October, 2000: in fiscal
year 2000, the government posted a surplus of $237 billion--almost double the previous
year's $124.4 billion, which itself was a doubling of the $69.2 billion of the year
before that. The government hasn't posted three consecutive years of surplus since
the post-WWII boom of the late 1940's. This windfall has largely been made possible
by the roaring economy, though the Balanced Budget Act of 1997 and welfare reform
have also played their part.
There are two approaches to dealing with the surplus, which were on display
most vividly during the presidential debates. The Gore approach is to use it to shore
up long term entitlement programs like Social Security and Medicare, the cost of which
is growing faster than overall economic growth, or, pay down the $5.7 trillion national
debt. Any other route, he says, would be irresponsible. "He (Bush) would spend
more money on tax cuts for the wealthiest one percent than all of the new spending
that he proposes for education, health care, prescription drugs and national
defense all combined," Gore said over and over during the presidential debates.
The Bush approach is to cut taxes across the board since the government
is taking in more than it needs to spend. "The surplus is not the government's
money. The surplus is the people's money. Now is the time to reform the tax code
and share some of the surplus with the people who pay the bills, " he said at
the Republican National Convention, a point he has hammered home throughout the campaign.
Both sides have some public support. But there are observers who warn that the surplus
itself is not a sure thing. For example, at the end of October 2000, President Clinton
and the Republican controlled Congress were negotiating over tax cuts and spending proposals
that could use up $900 billion or more of the projected non-Social Security surplus of
over $2 trillion over the next decade. Moreover, the Congressional Budget Office says
that if real economic growth is just 0.5 percent higher or lower than expected over the
next decade, the projected surplus could be off by as much as $250 billion. "Apparently,
says one skeptical non-profit
group,the Concord Coalition. no one
has told them (politicians) we haven't paid for the meal we've already ordered."
Both Gore and Bush present themselves as the candidate trying to do the right
and responsible thing with the surplus and both are very much in line with party thinking.
Bush would spend more than half the $2.2 trillion non-Social
Security surplus on an across the board tax cut which would
reduce all federal income tax rates (which now range between 15
and 39.6 percent depending on income). He also favors removing
all estate taxes and doubling the current child tax credits to $1000.
Over 30 percent of the money that would be returned by Bush╝s
tax cut would go to the wealthiest one percent of taxpayers.
During the first presidential debate, Bush painted the issue as
one of differing philosophies. "He (Gore) wants to make sure the right
people get tax relief. That's not the role of a president to decide right
and wrong. Everybody who pays taxes ought to get tax relief."
Gore insists that all Americans will be better off if the projected
budget surplus is used to pay down the national debt and shore up
Social Secruity, Medicare and education, instead of cutting taxes.
His proposed tax cuts are more modest. He wants to give tax breaks
to the working families that profited least from the biggest economic
boom in U.S. history. He has consistently portrayed himself as someone
who fights for middle class families. "Well, it IS your money.
But it's your Medicare, it's your Social Security, it's your environment,
it's your school system, it's your country," he has said, defending his plans.
Gore takes credit for Clinton administration's record of turning a
budget deficit into a surplus, and helped pass legislation lowering
taxes for low income families and small businesses. He has also
presented himself as an early and vigorous supporter of the Internet
and e-commerce. Bush has mainly used President Reagan's tax cuts as
a model for what he will do, since he has not held federal office.
Should the budget surplus be used for a tax cut? How Big and For Whom?
Vice President Al Gore opposes wide-ranging tax cuts, proposing
instead targeted tax cuts aimed at strengthening middle class and
low income families through elimination of the marriage penalty and
making the child credit refundable, as well as giving special tax breaks for
college education and healthcare. Some examples: he would offer
a $3,000 tax credit for individuals with long-term care needs and
their caregivers; new tax credits for child care costs, medical expenses,
energy efficiency; expansion of the earned income tax credit; and
a $10,000 deduction for college tuition. He also favors raising
the estate tax exemption limit from $2.6 million to $5 million,
removing estate taxes for about 90 percent of family farms and 70
percent of small businesses. He does not favor a complete repeal
of the estate tax saying it would "give a massive tax break
to the wealthiest Americans."
(More on Gore's tax plans.)
Governor Bush says Gore's approach is too government-oriented, as opposed
to his plan which gives tax breaks to all Americans. "It's the
difference between big, exploding federal government that wants to think on your
behalf and a plan that meets priorities and liberates working people to be able
to make decisions on your own," he said during the first presidential debate.
Other critics point out that Gore creates too many entitlement programs which
are hard to reverse. "Mr. Gore's initiatives are of a kind that could all too
easily lead to a return of deficits if the budget surpluses don't materialize as
planned. True, Mr. Bush's $1.6 trillion tax cut would also be written into law as
continuing indefinitely. But history shows that presidents and Congresses are far
more willing to raise taxes in the event of a revenue shortfall than they are
to cut entitlements," writes Bruce Bartlett of The Center for Policy Analysis
in The New York Times, August 22, 2000.
Bush proposes capping the top income tax rate at 33 percent,
the middle rate at 25 percent and shifting some of the income for
the bottom third of the population from 15 percent to ten percent.
He would reduce the marriage penalty and double the child credit
and also establish tax credits for healthcare and long term care. He
believes "the best way to encourage economic growth is to cut marginal
tax rates across all tax brackets".
Bush also proposes phasing out all estate taxes over eight years and
allowing non-itemizers to deduct charitable donations. Critics say
most of Bush's tax reforms will benefit mainly the wealthy. Noted economist
and MIT professor Paul Krugman said in The New York Times (August 20, 2000):
"Mr.. Bush's proposed tax cuts aren't just tilted toward high-income families;
they target them with awesome precision. Around half the benefits would go
to families with incomes of more than $250,000 per year; the average tax break
for families in the top 1 percent of the income distribution would be 100 times
that for families in the middle."
(More on Bush's tax plans.)
Should e-commerce be taxed?
Gore supports the tax moratorium on e-commerce and opposes any taxes on
accessing the Internet. He also believes that cyberspace should be a
permanent "duty-free zone," so that U.S. companies can sell goods, around the
world, through the Internet, without duties.
Bush favors extending the tax-free status of e-commerce at least till 2004. He
also opposes any taxes on accessing the Internet.
The Concord Coalition
"Saving the Surplus" --an article by David Gergen,in US News and World Report)
"A Fair Question: Bush Tax Plans Keep the Special Interests at Bay" -- Michael Barone analysis in U.S. News & World Report of both candidates╝ tax plans.
"Gore Plan Protects the Bottom Third" -- An article by two Brookings Institution analysts.
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