GOP Faith in Tax Cut Leaves Public Unconvinced

For true believers in the Republican revolution, a hefty tax cut was a magic bullet: a way to overcome past mistakes, cut down the federal bureaucracy and ease the pain of deficit reduction--all in one electrifying shot.

It has not turned out that way. Americans, according to recent public opinion surveys, are deeply divided over the merits of reducing taxes.

Republicans have scaled back their proposed tax cut by half of what they called for in the glory days following their takeover of Congress in 1994. Yet even the slimmed-down tax plan is generating great controversy, and it threatens to wreck White House-congressional negotiations aimed at balancing the federal budget by the year 2002.

“Tax cuts are absolutely pivotal to the entire Republican program, and they are the area of deepest disagreement right now,” said Stephen Moore, director of fiscal policy studies at the Cato Institute, a libertarian research organization in Washington.

When House Republicans last year approved a $354-billion tax cut as the crown jewel of their “contract with America,” ardent tax-cutters invoked the tradition of President Reagan’s 1981 10% tax cut.

Easing the burden on hard-pressed families ultimately would pay off at the polls, they reasoned. And putting a tourniquet on the revenue stream would cut off the very lifeblood of a bloated federal government.

“It’s been an article of faith since 1980 that being for tax reduction is a sure road to political victory,” said Herbert Stein, chief White House economist during the Richard Nixon administration.

Shrinking Proposals

In just the past few months, however, the crown jewel has lost much of its luster as Democrats attack it as a gift to the rich that will have to be paid for with painful curbs on health care and other social programs.

Republican budget negotiators have shrunk their proposed tax cut to $177 billion over seven years, with the lion’s share in the form of a $500-per-child tax credit for families earning up to $110,000 a year.

This is not the first time that tax cuts proposed by congressional Republicans have withered under an assault by a Democratic president. Such was the formula employed by Harry S. Truman, one of Bill Clinton’s presidential role models, when the Democratic underdog staged a dramatic come-from-behind victory in his 1948 election bid.

Twice in 1947, Truman had vetoed tax cuts approved by a Republican Congress. He went on to make the issue of tax fairness a central theme in his 1948 election campaign, with great success.

“He just went around the country hollering about the rich man’s tax cut,” Stein recalled. Viewed from this perspective, he added, the GOP’s current tax plan “seems to me to be a ready-made issue for Bill Clinton.”

Similarly, President Eisenhower, a Republican, pushed hard for deficit reduction over tax cuts in the 1950s, a stance that put him in conflict with leading members of his own party. But the congressional push for tax relief apparently did not pay off in the voting booth: Republicans lost control of the House in 1954 and did not regain it for 40 years.

While the political climate of the 1990s is different in many ways, a wariness toward tax cuts--when they are said to come at a price of reducing popular social programs--remains deeply entrenched.

Split Opinions

An ABC News-Washington Post poll conducted Jan. 6-7, for example, pointed to a virtual split in the electorate over whether tax cuts should accompany spending cuts. Some 46% of respondents, the poll found, supported a tax cut even if it means deeper cuts in federal programs to balance the budget; 49% opposed such a tax cut.

Yet, as congressional Republicans are only too aware, turning against a tax cut can be more dangerous to a politician’s health than sticking with one. President Bush’s damaging flip-flop on a tax hike in 1990, after he had pledged “no new taxes,” is still viewed as heresy by GOP activists.

Their dream is that the party becomes fixed in voters’ minds as representing a reduced federal government. Reagan, by contrast, cut taxes without trimming the size of government. Thus, the national debt tripled to $3 trillion under his watch.

This time around, Republican conservatives wish to reverse the course set by Bush on taxes and by Reagan on the expansion of bureaucracy.

“Those are the things they want to avoid,” said Allen Schick, a budget specialist at the centrist Brookings Institution. “Unfortunately, they don’t have the president behind them. And unfortunately, they don’t have a good portion of the American public behind them.”

In this sense, the tax issue isn’t about taxes at all. Rather it is a proxy for the entire welfare state. That is one reason that Republicans and the White House have made little progress on the budget even after Clinton submitted a seven-year plan to eliminate the deficit, as the Republicans had long demanded.

The Republican desire to shrink the government by reducing taxes “was a subtext with the Reagan people,” said Michael L. Duffy, associate dean of USC’s business school. “Now it’s just right out there, up front, writ large.”

There are other subtexts as well. Many supporters of a tax credit for families with children believe that it is a matter of fairness, especially because the value of the current exemption for dependents has been severely eroded over the years by inflation. This view is pushed hard by the religious right, which has lobbied the Republicans vigorously to embrace the tax credit and keep it as inclusive as possible.

House Republicans had proposed that families earning as much as $200,000 a year be entitled to the full tax credit for all children younger than 18. When they cut the size of their overall tax proposal in half, Republicans publicly agreed to reduce the income ceiling to $110,000.

Number Crunch

If they choose to shrink the family credit further, they would probably reduce the age of qualified children, cut the size of the credit below $500 a year or lower the income ceiling still further. Clinton, who has approved a per-child tax credit of his own, would limit it to $300 a year for children younger than 14.

“If you keep scaling it back, you’re really undermining what you’re trying to do to make a much more friendly tax code,” said Roger B. Porter, a professor at Harvard University’s Kennedy School of Government and an economic aide to the last three Republican presidents.

In an effort to prevent further slippage, House Speaker Newt Gingrich (R-Ga.) voiced another argument Monday for retaining a sizable tax cut in this year’s budget agreement: Without one, he said during a GOP campaign event in San Marcos, Texas, the economic expansion could come to a screeching halt.

“If we don’t get some tax relief out there, I’m afraid we’re in real danger of tipping into a recession,” Gingrich said.

But more broadly, the tax skirmish remains part of a fierce ideological fight that may become part of a yearlong debate on policy, especially if the White House and Republicans fail to reach a detailed agreement on balancing the budget.

“Every dollar we don’t cut in taxes is a dollar more that’s going to be spent on social programs,” said the Cato Institute’s Moore. “That’s why you’re seeing more conservative support for tax cuts than you’ve ever seen before.”