January 31, 1999
Experts question analysis GOP used to back tax-cut plan
They say U.S. levies are not too high now, and lowering them would aid mainly the wealthy.
By Robert A. Rankin INQUIRER WASHINGTON BUREAU
WASHINGTON -- Republicans in Congress are uniting behind an idea that they hope will help them recapture the good opinion of the public and win the presidency in 2000: cutting taxes. Unable to sell impeachment to the public, taking a beating in the polls, and deeply divided among themselves, GOP lawmakers in the House and Senate are promising to slash the federal income tax by 10 percent across the board.
Unlike last year, they are not permitting President Clinton to frame this as a choice between tax cuts and saving Social Security. This year they vow to do both.
New projections show that federal budget surpluses may total a phenomenal $4.5 trillion over the next 15 years. Republicans are willing to go along with President Clinton in setting aside $2.8 trillion of it -- 62 percent -- to save Social Security. But they deeply disagree with him over what to do with the rest.
In his State of the Union address, Clinton proposed to spend the entire $4.5 trillion surplus on Social Security, Medicare, new personal pension accounts, and a host of other programs.
Republicans responded with Reaganesque blasts, denouncing Clinton as a "tax-and-spend" Democrat while promising tax cuts instead.
Federal taxes are higher now than at any time since 1944 by one measure that Republicans emphasize: as a percentage of gross domestic product, the total value of all goods and services produced in the U.S. economy.
"Actual 1998 revenues came in at 20.5 percent of GDP, and new projections for revenues in 1999 put them at 20.8 percent of GDP, just one-tenth of a percentage point below the all-time high of 20.9 percent during World War II," said Sen. Pete V. Domenici (R., N.M.), chairman of the Senate Budget Committee.
Sen. William V. Roth Jr. (R., Del.), chairman of the Senate Finance Committee, which oversees tax law, insisted: "It is wrong that, in an era of ever-increasing surplus, Americans are being taxed more than since the end of World War II. It is wrong that 20.5 percent of our GDP is going into federal coffers."
Independent analysts, including prominent conservative economists, said that the GOP's analysis of today's tax levels misrepresents reality and that its proposed tax cut would mainly serve the wealthy.
Despite such protests, Republicans have said that a 10 percent tax cut would be simple, fair, and good for economic growth. They also believe it is good politics.
"The across-the-board tax cut says Washington doesn't have all the answers, and it ensures that your family's dollars are spent on family priorities, not on Washington's spending schemes," said Sen. Rod Grams (R., Minn.).
Clinton's priorities, by contrast, show that "to tax and spend is the order of the day," said Sen. Rick Santorum (R., Pa.), reviving a favored GOP attack line.
Taxes are high as a share of the nation's economic output primarily because stock values have doubled since 1995, Lawrence B. Lindsey, a conservative economist, recently told the Senate Budget Committee.
Revenue is flooding into the Treasury mainly because upper-income Americans are making a killing in the market, and corporate managers are being paid big stock-related bonuses, said Lindsey, a former Republican appointee to the Federal Reserve Board.
Fed Chairman Alan Greenspan, also a conservative economist with deep Republican roots, cited the same trend in House testimony last week, adding that another large source of surging tax revenues was the hefty commissions earned by high-income agents from record sales of existing homes. Most Americans have not shared much of that wealth, or seen their taxes rise with it.
"There is no evidence that the vast proportion of families are over-burdened with taxes. At most points in the income distribution, taxes are at their lowest point in over 20 years," William G. Gale, an economist at the Brookings Institution, a centrist think tank, told the Senate Budget Committee recently, citing data from the Treasury Department and the Congressional Budget Office.
"The increase in revenues is coming largely from increased income among the very-highest-income individuals," Gale concluded.
And it is they -- the wealthiest Americans -- who would gain most from the GOP tax cut.
A 10 percent tax cut would give the wealthiest 10 percent of Americans almost $4,000 each, on average, but the lowest-income 60 percent of taxpayers only $99 each, according to Citizens for Tax Justice, a respected liberal research center. The wealthiest 10 percent would reap 60 percent of the tax cut. Nearly 35 million low-income taxpayers would get no tax cut at all because exemptions eliminate their income-tax liability, but they still would pay heavy federal payroll taxes, the Center on Budget and Policy Priorities, another liberal research institute, noted.
In a further complication, the surpluses that Republicans want to give back in tax cuts are partly a myth rising from peculiarities of federal accounting, Gale of Brookings said.
The budget surplus outside Social Security will total about $700 billion over the next 10 years, the Senate Budget Committee has estimated. But about $350 billion of that is in reserves for the federal-employee pension program, Gale testified. That should not be counted as federal operating funds, but it is. Yet if it is wrong to spend Social Security reserves on tax cuts, Gale argued, the same logic should apply to federal pension funds.
Finally, because tax cuts would reduce the surplus buildup, less federal debt would be retired over time, and interest costs would thus be higher than under Clinton's plan, Gale said. That tax-cut effect would cut the projected 10-year surplus of $700 billion by 30 percent, he estimated.
In contrast, while Clinton does propose to spend the entire $4.5 trillion surplus eventually, he first would bank it in the Social Security trust funds. That method would pay down the federal debt to its lowest level since 1917, which Greenspan, the Fed chairman said would provide more long-term economic benefits than would tax cuts.
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Ventura: End Public Radio, TV Funds Friday, January 29, 1999; 8:10 a.m. EST
ST. PAUL, Minn. (AP) -- Pity the folks in Lake Wobegon -- the governor wants to eliminate state aid for public radio and television.
Gov. Jesse Ventura, whose colorful resume includes a stint as a radio talk show host, proposed cutting aid to Minnesota Public Radio, which produces Garrison Keillor's ``A Prairie Home Companion.''
State funding for MPR would be eliminated in three years; for television, it would be within four years.
Ventura, who released his first budget Thursday, said public radio has plenty of producers and ``state of the art equipment'' while the Twin Cities commercial stations he worked for -- KFAN-AM and KSTP-AM -- sometimes used equipment held together by tape.
Ventura's aides did not know what current funding levels are.
An official at MPR said state funds -- about 2 percent of its budget -- have never been used to pay for the network's operating expenses, only for capital expenses.
MPR is hoping to use new state money to complete a statewide network that would include new stations in towns not served by commercial stations, said Will Haddeland, vice president for public affairs.
© Copyright 1999 The Associated Press
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