Dole to Call for 15% Cut in Income Tax Rates

Republican presidential candidate Bob Dole will propose a 15% across-the-board cut in income tax rates today as the centerpiece of his plan to invigorate both the nation’s economy and his own bid for the White House, campaign officials said Sunday.

Dole is also planning to call for slashing the tax on capital gains in half and offering parents a $500-per-child tax credit, as proposed in the congressional Republican budget plan that was vetoed by President Clinton in December, the sources said.

Campaign officials said Dole would offer the tax-cutting proposals as part of a comprehensive plan to spur economic growth that will also include calls for limiting federal regulation and reforming the legal and educational systems. Overall, the plan will propose cutting federal taxes by $540 billion over the next six years while still balancing the federal budget, the sources said.

For Dole, the dramatic tax-cut proposal, coming as he nears an announcement of his vice-presidential selection and awaits the opening of the Republican National Convention in San Diego next week, offers an opportunity to refocus public attention on his campaign at a time when he badly trails Clinton in national surveys.

The proposal is likely to energize Republicans who fear that Dole has so far failed to set forth a compelling agenda and allowed his campaign to be sidetracked into secondary issues, such as regulating tobacco advertising.

But the plan also represents a substantial risk for the GOP standard-bearer: Even before Dole completed it, the White House and other Democrats were lining up to denounce it as a return to the Reagan-era supply-side tax policies that Democrats blame for the huge federal budget deficits of the 1980s.

“This is a revisit back to the early 1980s, $3 trillion of debt later,” Senate Minority Leader Tom Daschle (D-S.D.) said Sunday on CBS-TV’s “Face the Nation.”

The Dole plan’s estimated $540-billion cost over six years dwarfs the estimated cost of the $122-billion, six-year tax cut already included in the congressional GOP balanced-budget plan. That means to reach a balanced budget by 2002, Dole would have to find almost $420 billion more in savings or additional revenues than the existing Republican budget plan, which Clinton has charged would impose unacceptable reductions in federal programs.

Dole officials said they would provide “representative” examples of spending cuts and revenue increases that could fill most of that gap. They said they estimate that increased economic growth generated by the tax cut would swell federal revenues by $135 billion over that period--enough to pay for about one-fourth of the tax cut’s total cost.

Dole officials said that constituted a relatively conservative estimate of the plan’s potential effect on federal receipts. But Democrats quickly seized on the claim that the tax cut would even partially pay for itself.

During the 1980s, Dole was bitingly skeptical of supply-side claims that the Reagan tax cuts would generate so much economic activity--and tax revenue from that growth--that they would add nothing to the deficit.

“If Bob Dole comes out with that kind of plan, he’ll deserve the gold medal for flip-flop, because for 35 years he’s basically talked against just providing tax cuts without aiming at the deficit,” White House Chief of Staff Leon E. Panetta said on “Face the Nation.”

“For him now to embrace some kind of an across-the-board, or a significant, tax cut of 5 to 6 hundred billion dollars, and then say that growth is going to pay for it, is absolutely irresponsible,” Panetta said.

Dole’s plan will call for phasing in the 15% reduction in income tax rates over three years in increments of 5% per year, officials said. When fully phased in, that would bring the top rate down from 39.6% to 33.7% and lower the bottom rate from 15% to 12.8%

Dole will also call for halving the tax on capital gains from stocks and other investments from the current 28% to 14%.

In addition to proposing the per-child tax credit included in recent GOP budget plans, Dole will also propose a variety of smaller tax changes, including expanded access to individual retirement accounts and reform of the Internal Revenue Service, sources said.

Moreover, Dole is expected to repeat his earlier promise to follow up his immediate tax-cutting plan with proposals for more fundamental simplification of the tax code. During the Republican primaries, Dole frequently said he wanted “a fairer, flatter, simpler” tax code, but he sharply criticized the single-rate proposals offered by his rivals, particularly publishing heir Steve Forbes.

“The immediate goal is to provide tax relief for every taxpaying American,” said one Dole advisor. “The longer-term, more fundamental goal is to throw out the existing system and start from scratch with a system that is fairer and simpler and encourages more economic growth.”

Together with the proposals to reform the regulatory, litigation and education systems--all of which echo proposals already released by Dole or congressional Republicans--campaign officials say the tax plan the former senator will announce today during a speech in Chicago amounts to an integrated strategy for encouraging more rapid economic growth.

“What he is going to announce tomorrow is going to be a comprehensive plan,” Dole campaign senior advisor Donald H. Rumsfeld said Sunday on the CBS program. “Right now the American economy is kind of an Olympic runner with big weights on its legs and ankles keeping it from really getting up a full head of steam.”

Though the across-the-board tax cut echoes the Reagan proposals of the early 1980s, such supply-siders as Forbes and former Housing and Urban Development Secretary Jack Kemp actually support a different option. They urged Dole to adopt a plan to repeal the 1993 and 1990 tax increases signed by Clinton and Bush, and allow taxpayers to deduct payroll taxes from their taxable income.

Dole appeared to settle on that option late last week. But a senior campaign official said computer simulations showed the across-the-board reduction would deliver more broadly shared benefits.

“When all of the numbers were crunched, it became clear that a larger tax cut was available for this route,” the official said.

Dole will face fire not only from Democrats but also others who argue that the government’s economic priority should be to balance the federal budget.

On Sunday, the Concord Coalition, a bipartisan anti-deficit group co-chaired by former Republican Sen. Warren B. Rudman of New Hampshire--a close Dole ally--took out a full-page ad in the New York Times denouncing the idea of a large tax cut. “It’s too early for Christmas,” the group declared.

Clinton has proposed his own tax cut for middle-class families with children, as well as measures to provide tax credits and deductions for the costs of higher education. On Sunday, White House economic advisor Laura D’Andrea Tyson, speaking on CNN’s “Late Edition,” repeated her suggestion that she did not expect Clinton to offer any additional tax-cut proposals in response to the Dole initiative.