Bush's tax plan stumps economists


WASHINGTON -- President Bush's latest proposals for tax and debt reductions, if enacted, would lead to a new round of deep program cuts, according to economists.

But both conservative and liberal economists said the lack of detail made it difficult for them to assess the proposals' precise impact, and many viewed Mr. Bush's presentation as more a political than an economic exercise.

"I just don't see it as anything more than a gimmick, and not a very good gimmick at that. Unless it is backed up with real, tough spending controls, it's meaningless, and they weren't in there," said David Wyss, an economist with Data Resources, a Boston economic forecasting and consultation company.

Mr. Bush advanced his plan for across-the-board tax cuts and allowing taxpayers to earmark 10 percent of their federal income tax payments for reduction of the national debt in his nomination acceptance speech at the Republican Convention in Houston Thursday. The initiatives would be financed by cutting federal programs, excluding Social Security and defense.

He gave no details of how big the tax cut would be, which programs would be targeted for cutbacks or how his debt repayment checkoff proposal would work.

But Medicare, the health-care program for the elderly, and Medicaid, which covers the needy, would likely be prime targets for cuts. They are two of the fastest-growing federal outlays and major contributors to the burgeoning deficit. The Bush administration has already proposed capping their growth.

"We do come back to Medicare and Medicaid," said Carol Cox-Wait, director of the Committee for a Responsible Budget, a bipartisan education group. "It doesn't matter who is elected president; we are going to have to do something about the rate of growth in these programs, or they are going to bankrupt us. They are eating us alive."

Program cuts under the Bush plan would need the approval of Congress, and the two ends of Pennsylvania Avenue have shown scant ability to reach agreement on major economic issues over recent months.

"It's particularly difficult to figure how this can possibly play out because there are going to be so many new faces in Congress next year, and we don't know the ideological complexion of Congress, whether spending cuts are feasible and if so, where," said Paul W. Boltz, an economist with T. Rowe Price in Baltimore.

Certainly, no Democratic-controlled Congress would be likely to pass both the tax and debt reduction proposals, given their likely combined impact on federal spending.

Norman Ture, president of the conservative Institute for Research on the Economics of Taxation, who endorsed the Bush approach, said: "If you put them together, simple arithmetic tells you it calls for very substantial cutbacks in aggregate [government] outlays. There are some of us who think that would be an absolutely delightful thing to see happen, but that presupposes a disposition by Congress to do that. I don't see such a disposition."

Scott Hodge, federal budget affairs director with the conservative Heritage Foundation, welcomed the tax-cut proposal, saying it would lead to economic growth. The debt-reduction checkoff was "a neat little idea," which would "pit the taxpayers against the spenders in Washington."

"In a $1.5 trillion budget, if you can't find enough junk to cut out every year, you are just not looking hard enough," he added. "There's plenty of waste in the federal budget."

The checkoff box for debt reduction could have wide initial appeal. This year's $333.5 billion deficit and the $3 trillion national debt (the sum of all previous deficits) are the focus of increasing voter concern and frustration. It is probably fair, therefore, to assume that many voters, given the chance, would check the box Mr. Bush wants on the federal tax form to earmark the allowable 10 percent of their taxes to help pay off the debt.

According to Senate Finance Committee figures, if every taxpayer earmarked the full 10 percent, it would provide $51 billion in the current fiscal year for debt reduction and $291 billion over the next five years. Under the Bush plan, an equal sum would be cut from the ceilings on spending to prevent Congress from borrowing more.

If a self-funding tax cut were also approved, the cuts would have to be even deeper.

"I don't know how you do that. Who would vote for that? I don't even think Republicans would vote for that," said Stanley Collender, director of budget policy at Price Waterhouse.

He described Mr. Bush's speech as being "for election purposes rather than serious fiscal policy purposes," adding, "Once you start the numbers, it just doesn't make any sense."

Robert Greenstein of the liberal Center on Budget and Policy Priorities questioned where the spending cuts could be made. He said, "The problem is they are using the same dollars from spending cuts that they have identified four times over. The likelihood is that the tax cuts would be unfinanced, the deficit would get even larger, and the economy would be injured."

Lyle Gramley, chief economist with the Mortgage Bankers Association, who endorsed the basic thrust of Mr. Bush's ideas, said the president "laid out no concrete proposals."

2 plans compared

WASHINGTON -- Here are highlights of the economic proposals offered by President Bush and Gov. Bill Clinton:

The Bush plan would:

* Cut taxes and spending equally.

* Cut the capital gains tax.

* Increase the personal income tax exemption.

* Allow taxpayers to target 10 percent of their income tax toward reducing the federal deficit.

* Place a "cap" on spending in benefit programs such as Medicare, Medicaid, farm spending, food stamps and veterans' benefits.

* Extend moratorium on federal regulations for a year.

* Enact balanced-budget amendment.

* Veto spending bills that exceed his budget.

The Clinton plan would:

* Spur growth by investing $200 billion in public works, education and workplace training over four years.

* Raise taxes for those with incomes above $200,000.

* Cut taxes for the middle class.

* Cut defense spending by $37.5 billion more than Bush over four years.

* Guarantee access to health care while containing growth in health-care costs.

* Save billions by cutting government waste.

* Prevent tax avoidance by foreign corporations.

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