Dole Camp Weighs Plan to Cut Income Tax Rates

Looking for ways to sharpen the ideological contrast with President Clinton, Sen. Bob Dole’s campaign is seriously debating whether to propose an across-the-board reduction in income tax rates modeled on Ronald Reagan’s supply-side tax cuts of 1981.

Although no final decisions have been made, key officials inside Dole’s campaign have concluded that criticism during the presidential primaries fatally discredited the purist versions of the “flat tax” that many Republicans once expected to be the cornerstone of the party’s economic agenda this fall.

That conclusion has spurred talks within the Dole camp about instead proposing the reduction in income tax rates--as some leading conservative economists have begun urging.

The idea’s supporters believe such a proposal could prove the kind of bold stroke that captures voters’ imaginations and refocuses the ideological distinctions that Clinton has blurred by moving to the center on issues like the budget, crime and welfare reform.

A sweeping new tax cut “can be an excellent way of drawing a distinction between you and your opponent,” said one senior official in the Dole campaign. “On the other hand . . . we’ll have to be very certain about what we’re saying and how we respond to the counterattack.”

Indeed, within the constellation of consultants, advisors, friends and kibitzers that swirls around Dole, the tax-cut idea faces resistance from some who fear it would be vulnerable to charges of enlarging the deficit and favoring the rich--the same arguments Democrats leveled against Reaganomics during the 1980s.

As if to reinforce those concerns, Clinton administration officials pounced on even the suggestion that Dole might push for an across-the-board cut in income tax rates. “We would get right back into that debate about providing tax relief disproportionately to wealthy people and paying for it with unreasonable savings in Medicare and Medicaid,” said Lawrence Haas, associate director for communications at the Office of Management and Budget.

Like Dole’s current focus on repealing the 4.3-cent gas tax increase adopted in 1993, the discussion of proposing new tax cuts reflects the priority he and his advisors place on taxes as an issue that can help overcome Clinton’s large lead in recent polls.

Today, a new ad airs nationally that was produced by the Republican National Committee on Dole’s behalf and uses Clinton’s own words to target him on the tax issue. Spotlighting Clinton’s $265-billion tax increase in 1993, the ad includes video of the president telling a political fund-raiser: “People in this room still get mad at me over the budget because you think I raised your taxes too much. It might surprise you to know I think I raised them too much too.”

If Dole did embrace an across-the-board rate reduction--and campaign aides caution that their talks are still in an early stage--it would mark a counterpoint to his posture in the 1980s. He regularly feuded with then-Rep. Jack Kemp (R-N.Y.) and other supply-side advocates who inspired Reagan’s 25% reduction in income tax rates over three years.

Although Dole voted for Reagan’s 1981 plan, he frequently ridiculed claims from the supply-siders that the tax cuts would pay for themselves by accelerating economic growth. Over the intense opposition of the supply-siders, Dole in 1982 pushed through a major tax increase meant to reduce the federal deficits that exploded following passage of Reagan’s 1981 plan.

“The perception out there was that we were being unfair,” Dole said in defense of his actions at the time. “That we were just helping the people at the top . . . [and] the deficits wouldn’t go down.”

Given his frequent support for tax increases throughout his career, some conservatives worry that Dole would have difficulty establishing credibility as a tax-cutter. The Clinton campaign underscores this point. Still, some Democratic strategists worry that their party could be imperiled “by a debate in which the primary difference between us is they want to cut taxes and we don’t,” as one leading operative put it.

In fact, many around Dole believe that a debate over cutting taxes offers their best opportunity to efface the moderate image that Clinton has doggedly cultivated--with considerable success, polls show--since the 1994 congressional elections.

Taxes “could well become” the centerpiece of the GOP effort to paint Clinton as a liberal, said the senior Dole campaign official.

In one sense, Dole’s path along these lines is straightforward: to criticize the $265-billion tax increase included in the 1993 Clinton deficit-reduction package that passed Congress without a single Republican vote. More difficult has been settling on his own tax blueprint. And the debate within his camp makes it likely that a major Dole address on the economy, once scheduled for May, is now not likely to occur until next month.

Dole, of course, has supported the capital-gains tax reduction and the $500-per-child tax credit included in the GOP seven-year balanced-budget plan that Clinton vetoed. But campaign aides view that as an insufficient election agenda--partly because Clinton has already occupied similar ground by proposing his own tax breaks for education and middle-class families with children.

Nor do most Dole officials believe he should emphasize a single-rate flat tax as proposed by House Majority Leader Dick Armey (R-Texas) and GOP presidential contender Steve Forbes. Many Dole aides were always skeptical that Americans would embrace a plan that radically reduced the progressivity in the tax code, and Dole himself sharply criticized Forbes’ version of the idea during the primaries.

The attacks on Forbes’ plan--not only from Dole, but the rest of the Republican presidential field--have “absolutely” discredited the flat tax, argued the senior campaign official.

While Dole is unlikely to directly repudiate fundamental tax reform, some around him believe that, as during the primaries, he will continue calling for a “flatter, fairer, simpler” tax system as a long-term goal, while studiously avoiding the endorsement of any specific plan to get there.

This has led many Dole officials to focus on the calls from a handful of conservative economists for the GOP to reprise the across-the-board cuts in income tax rates that were at the center of Reagan’s economic agenda.

“I would be very surprised if something like this doesn’t happen, and sooner rather than later,” said one influential advisor to the Dole campaign. “I think the general thrust is moving toward a proposal for reducing taxes that would be the defining issue in the campaign.”

The tax-cut idea has been touted by Lawrence Kudlow, former chief economist at OMB under Reagan, and Bruce R. Bartlett, a former aide to Kemp, who has put forward the most specific plan.

Bartlett, who has spoken with Dole campaign officials, urges an across-the-board 15% reduction in income tax rates, with the cuts perhaps spread over three years. Such a cut would ultimately reduce the top rate from its current 39.6% to 34% and lower the bottom rate from 15% to 12.8%. Bartlett calculates such a rate cut would reduce federal revenues by nearly $90 billion annually when fully phased in.

Bartlett argues that such tax-rate reductions would prove more popular--and more effective at stimulating the economy--than tax breaks in the congressional GOP plan targeted at specific groups.

“The existing Republican tax package was done the way Democrats do things: Here is a special deal for your group, here’s another deal for your group,” says Bartlett, now a senior fellow at the Dallas-based National Center for Policy Analysis. “It seems to me this is more in the spirit of Republican politics . . . that we are going to do something for all taxpayers across the board.”