Have We Got A Tax Cut For You!

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Time was, selling a tax cut to Americans was about as hard as selling lotto tickets on the day of a $50 million jackpot. Everybody wanted one, no matter how loudly the experts warned against it. Just the phrase "tax cut" had a pleasant, numbing effect on otherwise disgruntled voters.

Which may help explain why George W. Bush looked a bit mystified last week as he struggled to interest voters in one of the biggest tax-cut proposals in recent history. Taunted by Al Gore's accusations that his plan favors the rich and endangers America's prosperity, Bush and his aides abandoned their Theme of the Week--education--and spent their time rebutting Gore and explaining (and then explaining again) Bush's plan. This marked the campaign's first serious message derailment since last February, when Bush visited Bob Jones University while slugging it out with John McCain in the South Carolina primary. After a less than lucid detour into budget baselines, tax cuts and available surpluses during a stump speech in Des Moines, Iowa, on Monday, Bush brought the issue up again, unprompted, on his campaign plane the next day. "I've got to do a better job of making it clear," he said, launching into another muddled description of his plan that left reporters running to his staff for even more explanation. By Thursday, Bush was parading working families before the cameras to demonstrate how his tax cut would change their lives.

For Bush, it was a bad week to be having a bad week. With the national polls giving the Vice President a 10-point postconvention bounce and even a slight lead over the Texas Governor, Bush needed to seize the agenda, not cede it to Gore. And though Gore could lose his groove as quickly as he found it, statewide polls indicate his advantage has grown in California and New Jersey. He is running ahead of Bush in Michigan--a crucial battleground state--and, for the first time, in Minnesota, which is normally a state Democrats can count on in a presidential election but which had been leaning toward Bush.

Once Bush found himself caught in the kind of policy dogfight Gore lives for--the type of exchange Bush dearly wants to avoid--he had no choice but to shoot back. And so Bush began exchanging fusillades with Gore, each claiming his plan would do more for middle-class people than the other guy's would, and each charging that the other would squander the nation's projected $4.6 trillion budget surplus (see chart). Gore asserted that his tax plan, which could cost up to $620 billion over 10 years, was more prudent and fair than Bush's, which would run $1.6 trillion over nine years. The Bush camp countered that Gore's plan would give no tax relief whatever to millions of Americans and that Gore's other spending proposals would feed the surplus to Washington bureaucrats, whereas Bush wants to "give it back to the people."

Before sorting through these competing claims, it's worth noting that both men are playing with funny money. Nobody knows for sure if the gaudy surplus projections will materialize. And there's legitimate debate about the usefulness of the Congressional Budget Office's fiscal predictions. "Most of the CBO's estimates are exaggerated," says fiscal hawk Robert Reischauer, a former CBO director who is now head of the Urban Institute. "The surplus is uncertain."

Half the surplus will be needed for Social Security, and both candidates promise that money is off limits. And the projected $2.2 trillion that remains may turn out to be far less. For one thing, the CBO estimates do not account for the fact that many popular tax breaks now scheduled to expire will almost certainly be renewed. The projections also assume that discretionary spending, such as the defense and education budgets, will grow no faster than inflation. Judging from recent history, Congress is unlikely to show that kind of restraint. "At best, we have a small surplus, nothing like the numbers that are being talked about," says Henry Aaron, a senior fellow at the Brookings Institution. In other words, Bush and Gore are arguing about how to spend $2 trillion that may not exist.

But let's suspend disbelief for a moment. Assuming the surplus does come through, what would the tax-cut plans really do for people? Bush says under his plan, a hard-working family earning $60,000 would be spared an additional $2,050 in taxes; under Gore's, he says, they would save nothing. But Gore points to an eerily similar-looking family and says just the opposite. So who's lying?

Neither is. Whether you benefit from each plan depends on the size of your income, how you choose to spend it and how many family members you're supporting. Generally speaking, you can believe the hype about the two plans. Bush's tax cut is almost three times as costly as Gore's and heaps most of its benefits onto wealthy Americans. Bush offers a couple of middle-class goodies--doubling the existing $500-per-child tax credit and reducing the marriage penalty--but since the thrust of his plan is an across-the-board cut, the wealthy folks who pay the bulk of the taxes would enjoy the greatest gains (the top tax bracket would drop from 39.6% to 33%). Bush would also repeal the estate tax, which in addition to providing needed relief to family farmers and small-business owners would deliver a windfall to the very rich. Result: a small number of affluent people would get almost half of the benefit from Bush's plan.

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