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Dole urges broad cuts in taxes Rate reductions, credits would total $548 billion in 3 years; 'I'm betting the country'; White House calls program a return to supply-side era; CAMPAIGN 1996

THE BALTIMORE SUN

CHICAGO -- Trying to strike a chord with financially strapped voters, Bob Dole promised yesterday to stoke the engine of American growth with a broad array of tax cuts.

"It's time to unshackle the U.S. economy from the big-government ball and chain and 'Go for the gold,' " the Republican presidential contender told an enthusiastic crowd at a forum sponsored by the Chicago Chamber of Commerce.

Dole's economic proposal, which is to be the central theme of his campaign, comes at the beginning of a two-week period in which he will announce his choice for a running mate and deliver his acceptance speech next Thursday at the convention in San Diego.

Dole contended that high federal budget deficits and high taxes are producing the "Clinton middle-class squeeze." He pledged to balance the budget and provide "tax relief for America's working families."

Dole's $548 billion program calls for a 15 percent reduction in income tax rates phased in over three years, slicing in half the tax on capital gains, and providing tax credits of up to $500 per child. He would expand the use of IRAs and repeal the 1993 increase on Social Security income subject to taxes.

The result, Dole said, would be to lower the federal income tax bill of a family of four making $35,000 a year by 56 percent.

"But this is only the beginning," he said. "We will not stop until we repeal the entire tax code and replace it with a simpler, fairer, flatter system that will allow Americans to file their tax returns without the help of a lawyer or an accountant, or both."

At the White House, President Clinton and his top financial advisers denounced Dole's plan as a replay of a failed strategy advanced by supply-side economists associated with the Reagan administration -- one the Democrats now blame for quadrupling the national debt.

"I am unalterably opposed to going back to the mistake we made before in having big tax cuts that are not paid for," Clinton said. "It will balloon the deficit, raise interest rates and weaken the economy."

White House press secretary Mike McCurry, noting Dole's history as a budget-balancer leery of tax cuts without accompanying spending cuts, said "it was a sad thing to watch Senator Dole humiliate himself by walking away from those beliefs."

It is by Dole's own description a "dramatic" proposal that dwarfs the $245 billion proposal that Republican lawmakers pushed through Congress last year only to be vetoed by Clinton.

"As of this moment, Bill Clinton and his party are the defenders of the status quo," Dole declared. "We are the party of change."

Dole's plan is being offered at a time when he is still lagging by as much as 15 to 20 points behind Clinton. "They say I'm betting the farm; I'm betting the country," Dole said.

"This is not a time to bet the country, it is a time to lead the country," countered White House chief of staff Leon E. Panetta.

The Clinton campaign yesterday launched an ad campaign charging that Dole is "gambling with our future" with a return to "supply-side economics."

"We are anxious to get into this debate," said Joe Lockhart, Clinton's campaign press secretary, who showed up at the Fairmont Hotel.

The focus of the Democrats' criticism is that Dole's tax cuts are not fully offset by spending cuts. Instead, Dole relies in part on $147 billion worth of "income growth effect," increased tax revenues he says would result from the more buoyant economic growth produced by the tax cuts.

White House budget adviser Gene Sperling said the growth factor anticipated in Dole's package was twice what Reagan had projected from the similar-sized tax cuts of 1981.

But Dole came prepared for criticism, and he spent a substantial portion of his speech defending himself. On the issue of fiscal austerity that has been a hallmark of his career, Dole said:

"We have long had a debate in our party about which should come first: Growth advocates say tax cuts. Fiscal conservatives say balanced budget. I say they're both right."

"Cutting taxes and balancing the budget are just a matter of presidential will. If you have it, you can do it. I have it, I will do it."

To help him keep this promise, Dole said, he would have two advantages not available to Reagan: a GOP-led Congress and a line-item veto, which beginning in January will allow the president for the first time to delete individual items from a larger spending bill.

Dole also cited attacks by Democrats that he is returning to the "failed" policies of the '80s.

He challenged the assertion that Reagan policies failed. "During the Reagan years, we vanquished inflation, brought interest rates down from double digits and averaged nearly 4 percent economic growth in the longest, peacetime expansion in history."

He said one of his proudest achievements was "helping to pass Ronald Reagan's historic across-the-board tax cut," which cut income tax rates by 25 percent.

Dole didn't mention that the following year, 1982, he also led the effort to raise taxes again because Congress refused to enact the budget savings that were supposed to have financed Reagan's tax cut.

The 1982 tax increases were not enough, however, to stop the deficit from increasing to more than $200 billion within a few years.

Dole anticipated that he would be able to make $217 billion in mostly unspecified reductions in addition to the $393 billion called for in the budget plan passed by the GOP majority in Congress.

Steve Forbes, the former Republican presidential contender and flat tax" advocate, said Dole had the credibility as a deficit hawk to convince people that he would follow through with the spending cuts.

"It's like Nixon going to China," said Forbes, who accompanied Dole on the Chicago trip.

A bigger concern, Forbes said, is that voters believe he is committed to his promised tax cuts.

"If you put something bold on the table, and are serious about it, they will respond very positively to it," Forbes said. "That's more important than the details."

In deciding the policy that is to be the centerpiece of his campaign against Clinton, Dole is challenging the conventional wisdom that when most economic indicators are relatively strong voters are uninclined to change presidents.

Inflation is low and unemployment is dropping, but "during Bill Clinton's presidency, real wages have stagnated and the real median household income has actually dropped," Dole said.

Dole was preaching to the choir in Chicago, where the Republican leaders warmly applauded his proposal. But there was some skepticism about whether it could be put into effect.

"If it can get through Congress, it would be amazing," said Charlotte Shaw, a tax executive with a local manufacturing company. "A lot of promises are made to the American people, but they stumble in Congress."

Illinois State Rep. Maureen Murphy, a Republican who helped push through a package of tax incentives here that have already had a positive effect on growth, agreed the job would be difficult at the national level.

"It's going to be a struggle to get people to understanding what we're trying to do," she said.

Highlights

* Reduce income tax rates by 15 percent over a three-year period, dropping top bracket to 34 percent from 39 percent; lowest rate would drop to 13 percent from 15 percent -- $406 billion.

* Cut capital gains tax rate in half, with top rate dropping to 14 percent from 28 percent -- $13 billion.

* Tax credit for every child 18 and younger; $250 in first year, $500 thereafter -- $75 billion.

* Expand use of tax-free IRA's: $27 billion.

* Repeal 1993 increase on the amount of Social Security income subject to tax: $27 billion.

Source of the money

* Cut 10 percent in non-defense administrative costs: $90 billion.

* FCC Spectrum auction: $34 billion.

* Cut from Energy Department: $32 billion.

* Cut from Commerce Department: $15 billion.

* 1 percent reduction in other spending programs.

* Higher tax revenue from economic growth: $147 billion.

* Savings from congressional budget resolution: $186 billion.

* Higher tax revenues from this year: $75 billion.

Pub Date: 8/06/96

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