The better tax cut

Boston Globe editorial, 10/23/2000

One in a series of editorials on presidential campaign issues.

ONE OF THE ODDITIES of this fall's presidential campaign has been the tentativeness from both candidates on the issue of taxes.


It didn't start out that way. Texas Governor George W. Bush plunged in early, during the Republican primaries. Hounded by the flat-tax proponent Steve Forbes, Bush proposed unprecedented deep cuts that would save taxpayers, by his estimate, $1.3 trillion over 10 years. ''As you can see from this tax plan,'' he said last December, ''I choose the creation of wealth over the care and feeding of government.''

More recently, however, Bush has hesitated to push his tax-cut proposal and has even tried to downplay its enormous size, emphasizing that it is ''only'' a quarter of the projected 10-year surplus.

Vice President Al Gore spent much of the summer blasting Bush's tax cuts as far too deep and tilted toward the wealthy. ''I will not go along with a huge tax tax cut for the wealthy at the expense of everyone else, and wreck our good economy in the process,'' he said at the Democratic Convention.

But Gore has softened that line of attack in many recent appearances. In the meantime, he has proposed his own tax cuts, which at $500 billion over 10 years are less than half the size of Bush's.

Most of Gore's proposed cuts are contained in dozens of credits and deductions targeted for specific purposes, such as marriage penalty relief and support for child care, education, and training. Gore calls his proposals ''tax cuts that go to the right people - to the working families who have the toughest time paying taxes and saving for the future.'' Bush has attacked the Gore plan as having a Big Brother aspect to it - rewarding persons who behave the way the government likes, and leaving out others.

Each of these viewpoints has validity. The Bush and Gore tax plans and the concomitant budget choices each makes are genuine self-portraits.

Voters still undecided would do well to take a closer look.

Gore can take some credit for political courage in settling on an overall figure that is less than half of Bush's. Tax cuts are generally popular, for good reason. Any candidate who oppose large tax cuts takes on the responsibility of mounting detailed arguments.

The upside for Gore is that, having given away far less than Bush, he can offer spending plans that do far more to tackle a range of needs - education and health care prominent among them, but also the military. Despite Bush's jabs at weaknesses in the current armed forces, his projected budget increases for the Pentagon, limited by his big tax cut, are actually less than Gore's.

When Bush says Gore's plan is complicated and manipulative, he has a point. Gore's proposal would have more appeal if it included something broader - a modest increase in the personal exemption would spread the benefits. But it is fitting that Gore wants to use the tax code for specific purposes; he believes in government's ability to take positive action and to influence citizens' actions.

Still, Bush is being disingenuous when he asserts, as he did in the first debate, that is is not the job of the president to use targeted tax provisions for specific purposes. The oil industry and professional sports - including the Texas Rangers he once owned - are but two examples of special interests that have benefited enormously from targeted tax breaks. And Bush himself includes several new targets in his own plan, including the elimination of the estate tax and the inauguration of Education Savings Accounts.

Bush's own tax and budget proposals fit generally with his embrace of ''limited government.'' But the severely deep tax cuts create several problems for the economy.

One is that Bush does not have enough revenue to deal with many demands, including relieving the nation's enormous debt. Gore's plan, assuming economic forecasts hold, would wipe out the national debt by 2012. Bush's plan would actually reduce the rate at which the debt is being paid off. In addition to being unfair to the next generation, a continuing national debt tends to push interest rates up, creating a hidden tax on homeowners and consumers - nearly everyone in the economy.

Another problem for Bush is that some of his assumptions and calculations are suspect. Paul Krugman of The New York Times, for instance, has pointed out several Bush errors, some of them large. One is his use of $400 billion in Medicare funds as part of his budget surplus estimate, even though this money should be segregated - a position taken by nearly everyone in Washington including the Republican leadership of Congress.

Yet another major problem for Bush is the uncertainty of economic forecasts. His tax cut would leave little room for weathering a downturn in the economy, with the result that untimely tax increases might be required.

If anything, with the economy steaming along so successfully, a major tax cut would likely provide stimulation where none is needed, threatening to overheat markets.

The situation brings to mind Ronald Reagan's promise in 1980 to cut taxes and rebuild the military while eliminating budget deficits. He accomplished the first two, but deficits spurted out of control, with painful results.

With revenue healthy, the government can and should return something to the taxpayers. Overall, Gore's approach is measured and sensible. Bush's intemperate tax cut proposal is a prescription for trouble.