Just the Facts on Dole’s Economic Growth Plan

Bob Dole’s comprehensive economic growth program--which features tax cuts and reform, enough savings to balance the budget and education, job training, regulatory and legal reforms--has been met by ferocious and disingenuous attacks, orchestrated by White House spin meisters and their allies.

“Voodoo II! You cannot cut taxes and balance the budget--that’s incredible! It will cost $800 billion!” These are but some of the hyperbolic charges levied by White House political hacks and economic advisors.

What’s really in the Dole program to raise family incomes and create greater opportunity? The program would slow the growth of spending, leading to declining deficits and a balanced budget by 2002. A 15% across-the-board reduction in tax rates and a $500 per child credit would bring tax relief to 90 million American families. The capital gains tax rate would be cut to a maximum of 14%, unlocking trillions of dollars in capital to create new jobs and businesses. Individual retirement accounts would be expanded to increase savings. President Clinton’s 1993 tax increase on Social Security recipients would be repealed. And a super-majority (60%) vote would be required in Congress to raise income tax rates. As a down payment on fundamental reform to a flatter, fairer, simpler tax system to be implemented in the next several years, the Internal Revenue Service would be made more taxpayer-friendly.

There are a number of additional proposals that have not been as widely reported. These include education and job training reform focused on choice and competition; allowing deductibility of interest on student loans; tax-exempt education investment accounts; tax-exempt college tuition assistance from employers; increasing workers’ access to tax-free job search and placement assistance from employers; and consolidating the more than 100 job training programs into a single grant to the states, which would be encouraged to experiment with innovative private-sector approaches.

Cost benefit analyses would be required for new major federal regulations. The government would have to review and reevaluate regulations every four years and enforce the paperwork reduction act (which Clinton has ignored). Legal reforms include limits on punitive damage awards; promotion of early settlement of claims; curbs on abusive contingency fee representation; auto choice reforms that could dramatically lower insurance premiums; and reforming the joint and several liability doctrine, which encourages lawyers to sue everyone in sight for the entire amount of damages, even if they had only a tangential relationship to the alleged illegal activity.

A married couple with two children earning $30,000 per year would get a 71% reduction in their federal income tax; a couple earning $50,000 would have a 38% reduction; a couple earning $100,000 would see their federal income tax reduced by 24%.

The overall “cost” as estimated by Dole’s economic team (myself included) is $548 billion. White House economic advisor Gene Sperling, whose reputation for making up numbers is documented in recent books on the 1992 campaign, says it will cost more than $800 billion. The nonpartisan Joint Committee on Taxation of Congress, the official scorekeeper, confirms the Dole team’s estimates.

How is it paid for?

Here is where the voodoo economics straw man comes into play. “Dole is claiming the tax cuts will pay for themselves.” The same argument was hurled ferociously at President Reagan in 1981 and has been used to try to discredit Reagan’s policies ever since. The charge is simply fallacious. First, the Dole program assumes that a modest 27% of the revenue would be recouped by some combination of higher incomes and less tax sheltering.

The historical evidence from the 1980s tax cuts, and the symmetric evidence from the 1990s tax increases, suggest that the figure is more likely 40% to 50%. Thus, the Dole assumptions are conservative.

Second, Reagan never said his tax cuts would pay for themselves. The Reagan team also assumed a modest revenue reflow. What happened in the 1980s was that the tax share in the economy was stabilized, not reduced, by tax cuts and indexing of tax brackets. The revenue reflows from the rate cuts were substantial, but not sufficient overall to pay for themselves. The culprit for the deficits in the 1980s was that spending went up, not down, because Congress would not control it.

The savings in the Dole plan, not only to finance the tax cut but to balance the budget by 2002, come from slower growth of overall spending, including some outright cuts. About two-thirds of these were expressly laid out in the Dole program--the $393 billion in the 1996 Congressional Joint Budget Resolution.

Of the remaining approximately $200 billion to get to a balanced budget, Dole has laid out a variety of potential options. A 10% across-the-board reduction in the administrative expenses of government would save $90 billion, for example.

The charges that the Dole plan is vague are thus simply ludicrous. This is far and away the most specific any presidential contender has been in history. Compare it with Clinton’s 1992 Putting People First plan, almost all of which was just hyperbolic rhetoric. When costed out, Clinton’s program would have produced a revenue shortfall of between half a trillion and a trillion dollars. That is one of several reasons he pushed the largest tax increase in history rather than his middle-class tax cut.

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No one suggests that the spending constraint will be easy, but surely it will be within the grasp of a President Dole receiving budgets from a Republican Congress, able for the first time to use a line-item veto to reject even Republican pork.

The Dole plan makes sense. The numbers are credible, despite the barrage of criticisms from the White House and its allies. Consider the source: The president’s 1993 Economic Plan claimed $500 billion in deficit reduction, conveniently ignoring all of the increased spending that reduced this total to a little more than $300 billion. They also claimed they had the same amount of spending cuts as tax increases, by redefining what was spending and what was taxes; the real ratio was five dollars of tax increases to every dollar of spending cuts. The same group told us that the president’s health-care plan--a monster in its own right--had numbers that were “bulletproof” or “airtight.” When serious economists, including myself, examined these numbers, they were short by $100 billion a year, and even their own party leaders termed them “fantasy.”

As Sgt. Joe Friday on the old television series “Dragnet” used to say, “Just the facts.” Well, those are the facts, folks. Make up your own mind.