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Economists call candidates' tax plans inconsequential

THE BALTIMORE SUN

WASHINGTON -- Ask Paul E. Tsongas what he would do about the middle-class tax cut currently being proposed by fellow Democrats in Congress, and he will tell you bluntly: veto it.

Ninety-seven cents a day, he mocks: What sort of response is that to the nation's economic blight? He favors long-term benefits for business over a quick fix for the consumer.

Jerry Brown has another approach to tax reform: Scrap the entire federal progressive system and introduce a flat 13 percent levy on all income.

Meanwhile, Bill Clinton would take more from the wealthy to ease DTC the tax burden on middle- and low-income families, reversing the upward redistribution of wealth during the Reagan-Bush years.

In this recession-focused election campaign, the candidates are offering voters in Maryland and across the nation a smorgasbord of tax initiatives. There is almost as much variety on how to lead the nation out of hard times among the Democratic candidates as there is difference between them and the Republicans.

In terms of ending the recession, the campaign proposals and promises are all probably academic: Most economists predict a weak recovery picking up pace late spring or early summer, possibly before the parties choose their presidential candidates and almost certainly ahead of next January's inauguration.

"I think the general thrust of what they are saying is probably the important thing. The details are not so important," said Robert S. McIntyre, director of the Citizens for Tax Justice, which campaigns for a fairer distribution of taxes.

"I don't think anybody has much of a plan for the economy, basically because they are in a straitjacket with the deficit. There's not much you can do. We are in this big hole, and it's not going to do any good to dig the hole any deeper."

Max Sawicky, public finance economist with the Economic Policy Institute, said: "There is a political imperative to be perceived as trying to do something about an important problem. In terms of dealing with the recession, which some of these candidates advertise their proposals as doing, they are all completely inconsequential, and that includes the president's proposals for that matter."

Only the president and Congress can respond speedily to the public call for crisis action, but they are at odds over what to do.

Mr. Bush wants to pay for his middle-class tax cut proposals from defense savings. The Democrats on Capitol Hill want to fund theirs by taxing the rich.

Mr. Bush would also earmark defense savings for deficit reduction. The Democrats would prefer to use the so-called "peace dividend" for a jobs-creating public works program.

The two sides agree on giving first-time homebuyers a break, but disagree on lowering the corporate tax rate (the president would, and the Democrats wouldn't although at first they thought they would). There is even talk of an election year budget-busting bidding war on tax cuts between Mr. Bush and congressional Democrats.

They and the presidential candidates all face one fundamental dilemma: the need to be seen to be doing something -- even as many economists urge them to do little or nothing.

A recent survey by the National Association of Business Economists, found that a majority of the 49 economists questioned opposed the sort of stimulative tax cuts or spending increases being advanced by politicians of both parties.

With the first sputterings of recovery perhaps already visible in a reawakening retail market and increasing home and auto sales, the economy, according to many experts, could be starting to come slowly out of crisis like a wheel turning.

To spin it suddenly faster could lead to trouble: A tax-cut boost to spending could revive inflation, estimated to stay at an annual rate of around 3 percent this year; a capital gains reduction could eventually increase the deficit already heading for $400 billion; spending on some public programs might invite a splurge on others which the country cannot afford.

"Kill All The Tax Bills," urged an editorial in the Washington Post this week.

Murray Weidenbaum, chief economic adviser to President Ronald Reagan in the early 1980s, said, "I don't often agree with the Post, but this might be a time when I do.

"I have what I call a cynical leading indicator: When Congress gets around to passing a jobs bill or a tax bill to deal with recession, that means we are coming out of it. The legislation will take effect during the upturn."

But with their political lives on the line, the president, the challengers for his job, and the members of Congress seeking re-election will all claim to possess the key to economic revival.

The National Association of Manufacturers has looked at both the administration's and the congressional Democrats' bills and found each lacking. Neither would foster the sort of long-term growth manufacturers are looking for. Both would advance economic activity forward to this year at the risk of undercutting growth in future years.

"It is not surprising this timing problem coincides with an election year," said Gordon Richards, NAM's economist. "There is some debate at NAM as to whether you should support bad tax bills because you can't get anything better, or whether you should just oppose everything on the grounds that what you get will be terrible."

The NAM has not analyzed the proposals from the various presidential candidates for fear of breaching its self-imposed prohibition on taking sides in an election.

Less constrained, Murray Weidenbaum, now director of the Center for the Study of American Business at Washington University, St. Louis, has glanced at them, and surmised: "As I see it, the economy slowed down or was growing very slowly before the recession, and from every indication I have it's going to continue to grow very slowly after we have pulled out of recession.

"That's the kind of situation that needs some legislative attention. The quick fix, such as pumping some purchasing power into the middle class [through tax cuts], frankly, is not going to help."

President Bush, Pat Buchanan, Bill Clinton and Bob Kerrey favor middle-class tax cuts of various sorts. Tom Harkin and Paul Tsongas oppose them. Jerry Brown has his own flat-tax agenda.

Ellen Nissenbaum, of the Center on Budget and Policy Priorities, when asked about the candidates' proposals, said, "We have not looked at them in any detail. I think the issue right now is so much of the stuff is formulating, and we are in the middle of the real tax debate on the Hill.

"By and large . . . most of the tax stuff, we are really skeptical about."

Sharing that skepticism is Dianne Swonk, economist with the First Chicago Corp.

"With most economists, I tend to be very leery of any of the tax proposals right now and their ability to get the economy into recovery," she said. "Whatever we see coming down the road, whether from the Republicans or Democrats, basically is not going to be a determining factor in whether or not we hit recovery.

"By the time tax cuts can get out there [into the economy] they are going to be adding onto something that is already under way."

Friday: Health Care

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