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04-01-2000

TAXES: Bush And Gore's Positions On Taxes

In this era of federal surpluses, how much-not whether-to cut taxes will
be the key question in the presidential campaign. Many Republicans who
supported the presidential bid of Sen. John McCain, R-Ariz., said in polls
that they would rather pay down the national debt than receive a tax cut
as large as the one proposed by George W. Bush-some $483 billion over five
years. Democrats, including Al Gore, have seized on those sentiments. Gore
has said a five-year tax cut should be in the $250 billion to $300 billion
range, which interestingly is still a little more than the $223 billion
plan that McCain had pushed.

Bush and Gore contend their tax cuts would help middle-income working people. But Bush favors a more broad-based tax cut, while Gore backs targeted tax cuts similar to those proposed by President Clinton. The candidates do agree, however, that married couples need relief from the tax code's so-called marriage penalty.

Bush has said that under his plan, a family of four earning $35,000 a year would receive a 100 percent income tax cut. If that same family of four were earning $50,000 a year, they would receive a 50 percent tax cut, and if they were earning $75,000 a year, they would receive a 25 percent tax cut. "My tax cut plan is not just about productivity, it is about people," Bush said in an outline of his proposals. "My plan sets out to make life better for average men, women, and children."

Bush proposes slashing the 15 percent tax bracket to 10 percent for the first $6,000 of income that is taxable for singles, the first $10,000 for single parents, and the first $12,000 for married couples. He also proposes doubling the child tax credit to $1,000. Bush wants to cut the marginal tax rate-the percentage of income paid-for middle-class taxpayers from 28 percent to 15 percent and from 31 percent to 25 percent. For marriage penalty relief, Bush proposes restoring the 10 percent deduction for two-earner families so that they could deduct up to $3,000 more than currently permitted.

Bush wants to allow taxpayers who do not itemize to be able to take a deduction for charitable contributions and to increase the cap on corporate giving. He would raise the annual limit on what families could contribute to tax-free education savings accounts from $500 per year, per child to $5,000. At the same time, he would repeal the Social Security earnings limit, under which seniors ages 65 to 69 who make above $17,000 a year lose $1 in benefits for every $3 earned. (Clinton is expected to soon beat Bush to the punch by signing recently passed legislation that would do the same thing.) Bush would also abolish the estate tax.

For business, Bush would make the research and development tax credit permanent, and would cap the top marginal tax rate at 33 percent, down from the current 39.6 percent.

Defenders of Bush's approach say that without a large tax cut, the federal surplus would stay in Washington, where pressure would grow to spend it on new and existing programs. They also emphasize that the plan would lower taxes for all Americans. "This plan helps those Americans with lower incomes the most," declared Grover Norquist, the president of Americans for Tax Reform.

By contrast, Gore offers a more targeted approach. "My point today is a simple one: America can have tax cuts that reflect our values and strengthen hardworking families," he said in a speech last year.

While Republicans continue to blast Gore for breaking a tie Senate vote on the 1993 budget, which included a 4.3- cents-per-gallon gas tax increase and other tax hikes, Gore touts that vote as helping low-income taxpayers by expanding the earned income tax credit. His campaign platform calls for increasing the amount of income a married couple can earn and still qualify for the full EITC benefit.

Moreover, Gore wants to provide "wealth creation and retirement savings among low-middle-income families," according to a summary of his plan. He has said that tax-free universal savings accounts-voluntary retirement contributions that the government would match-would provide access to savings for 70 million to 80 million people who do not have individual retirement accounts or 401(k)s. Clinton has proposed a similar plan.

In addition, the Gore tax cut plan calls for a 401(j) lifelong earning account. Families, including grandparents, and employers would be able to contribute up to $2,500 a year, and earnings could be withdrawn and used tax-free for education expenses or other costs related to "lifelong learning." Currently, only people up to the age of 30 can use education IRAs, but Gore's plan would allow those over 30 to use the accounts if they need to acquire new skills for their careers.

Gore has called for marriage penalty relief by raising the standard deduction, so that a married couple would have the same deduction as if they were single. For corporations, Gore would make the research and development tax credit permanent.

Defenders of Gore's plan say that it prudently leaves a cushion in case budget surpluses are not as large as expected. "Our message of paying down the debt and concentrating first on Social Security and Medicare played extremely well with those moderate-to-conservative voters that Gov. Bush is going to have to target," said an aide to a moderate House Democrat.

Amid the rhetoric over who has the better tax cut, polling experts say that the public may not be craving a tax cut, because of the strong economy. "If you ask people about what's important to them in this election, tax cuts come far down the list," said Karlyn H. Bowman, a resident fellow of the American Enterprise Institute for Public Policy Research who specializes in public opinion. "At a time when people are feeling pretty good, as they are now, tax cuts have less punch."

Bowman noted that in 1979, a time of slow growth and high inflation, Gallup Organization asked people whether the government should cut taxes even if it meant putting off things that needed to be done, and 62 percent said they still favored tax cuts. When Gallup asked the same question recently, only 21 percent said they favored tax cuts.

On the Stump

Bush

Greater Des Moines (Iowa) Chamber of Commerce, Dec. 1, 1999

I do not accept the assumption that it is somehow risky to let taxpayers keep more of their own money. What is risky is when politicians are given charge of a surplus. There is a strong temptation to spend it. And, in Washington, that temptation is overwhelming. A government with unlimited funds soon becomes a government of unlimited reach. There are only two things that can be done with a surplus. It can be used by the government, as the President proposes. Or it can be used by Americans, to save and build and invest. As you can see from this tax plan, I have made my choice. I choose the creation of wealth over the care and feeding of government. I am always amazed when I hear politicians say government cannot afford a tax cut. May I remind them that the government does not pay for anything: The people pay for government. The question is not how much government can afford to give to taxpayers. The question is how much the taxpayers can afford to give to government. Low tax rates are a powerful economic tool to promote a higher standard of living for all Americans.

Gore

Minnesota Community Technical College, Minneapolis, July 30, 1999

I believe tax cuts should be carefully targeted to the hard-working, middle-class families that need them the most. And today, I want to propose a number of ways to do just that. To begin with, we need tax cuts that are targeted to keep the economy growing and increase our productivity. That is why I have proposed to extend and expand tax cuts for research and development-so the private sector can invest in the jobs and discoveries of the future. And I believe we should craft these tax cuts specifically to help the small businesses and start-ups that are so crucial to our high-tech future. Then we should cut taxes to help families meet their most pressing needs. Already, we help people save for retirement tax-free, and help them pay the interest on their mortgage tax-free. Now we should cut taxes to help with some of the most important expenses families face-health care and education. We need targeted tax cuts to make health care more affordable for families. Right now, I am fighting for a tax credit to help with the costs of long-term care. But that should be just the beginning. We need a broader strategy to expand health care coverage.

Position

Bush

* favors cutting tax brackets

* favors doubling the child care tax credit

* favors cutting the marginal rate for the middle class

Gore

* favors creating lifelong earning accounts

* favors raising the standard deduction for married couples

* favors creating USA accounts to encourage savings

By the Numbers

Would you be more likely or less likely to vote for George W. Bush if you heard he has pledged to cut taxes?

More likely 49%

Less likely 15

No difference 34

SOURCE: Pew Research Center, 3/19/00

Allies and Advisers

Bush

* Lawrence B. Lindsey, former governor, Federal Reserve System

* John B. Taylor, former member, Council of Economic Advisers

Gore

* Robert Rubin, former Secretary of the Treasury

* Elaine Kamarck, professor, Harvard University

* Laura D'Andrea Tyson, former chairwoman, Council of Economic Advisers

David Baumann National Journal
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