Rubin Cautions GOP on Cost of Tax Cut

In a likely preview of how the White House would combat any Republican proposals for an across-the-board income tax cut, Treasury Secretary Robert E. Rubin said Tuesday that such a move would benefit wealthy people the most and risk ballooning the federal budget deficit.

Across-the-board tax cuts “get into numbers that are gigantic,” Rubin said. A cut in the range of 10% to 15%, which Republican presidential hopeful Bob Dole is said to be considering, would cost several hundred billion dollars over seven years.

“So if somebody’s going to propose very big tax cuts,” Rubin said, “I would think they would also then have to propose how they’re going to pay for it.”

The Treasury secretary’s comments, made during a lunch meeting with the Los Angeles Times Washington bureau, underlined an unusual role reversal taking shape between Democrats and Republicans on fiscal policy during this election year, as well as the difficulties that Dole will face if he decides to use tax cuts as a strategy in his presidential campaign.

Rubin’s comments on taxes and the deficit showed the Democratic White House seeking to stake out the turf of fiscal responsibility--once a GOP domain--and saddle Republicans with the burden of explaining how their income tax proposals would affect the size of the budget deficit.

The nation is now on the path toward a smaller annual deficit for the fourth year in a row, a fact that is not unnoticed within the administration. “If our nation is going to be successful economically in the years and decades ahead,” Rubin said, “we’ve got to be in a fiscally responsible position.”

In the one-hour session, Rubin expressed the hope that new inflation-protected Treasury bonds, which the government said last week it intends to begin offering, would become popular savings vehicles for Americans who earn $30,000 to $50,000 a year.

He predicted that President Clinton would continue to pursue health care reform if he wins a second term, and he kept at arm’s length a capital gains tax cut, a proposal highly popular with Republicans and one the president has considered in the past.

“There’s a lot of ideology and religion around capital gains tax cuts,” said Rubin, noting that studies have not established that capital gains cuts boost the savings rate.

Yet if one of Dole’s challenges will be to find an effective way to attack the president on the economy in a time of low unemployment and little inflation, the economy poses delicate issues for the administration as well.

Alluding to traditional measurements of economic well-being, Rubin said: “I think the most likely scenario is solid growth and low-to-moderate inflation.”

But he implicitly acknowledged that those measurements do not fully capture voters’ views of the economy, given widespread fears about corporate layoffs and the struggle of many workers to raise their incomes. Unlike in the past, when economic growth and low inflation seemed to translate to broad-based prosperity, such gains no longer are universal.

Continued economic expansion would help workers’ wages, Rubin said, but he added that upgrading workers’ skills through education and training would further help their financial prospects and should be a “national priority.”

Turning to tax policy, Rubin sounded a cautious note about major reforms, as well as about efforts to make the bewildering tax code more simple.

The administration has made some changes simplifying certain corporate tax decisions and also has proposed simplification of pension issues. “I think over time you’ll see other ideas develop, but whether they’ll come out during this election period, I don’t know,” Rubin said.