Pocketbook Politicking

Presidential campaigns increasingly take their themes from sound-bite slogans aimed at fixing in voters’ minds one thing that candidates hope will be remembered on election day. For Bob Dole, the talismanic slogan is “15%”--the size of the across-the-board tax cut he promises to phase in if elected. Within three years, the Dole cut would reduce the lowest tax rate from 15% to 12.75%, while the highest marginal rate would drop from 39.6% to 33.6%.

As part of his tax and spending package Dole also wants to lower the capital gains tax to a maximum rate of 14%, and he would give income-tax joint filers earning up to $110,000 a $500 tax credit for each child under 18; single filers earning up to $75,000 would get the same credit. Dole would effectively do away with capital gains taxes on the sales of most homes.

IN ALL, HE WOULD cut taxes $548 billion by 2002, the year by which both he and President Clinton have promised to achieve a balanced budget. But can deficits be shrunk even as revenues are reduced? Dole argues they could, if they were accompanied by spending cuts and if--as he stoutly maintains they would--his tax cuts so stimulated enterprise that $147 billion in new revenues flowed into the Treasury. This is the so-called supply-side effect. Remember that President Ronald Reagan’s supply-side tax cuts in the 1980s also were supposed to pay a big fiscal dividend. It didn’t happen.

What Dole doesn’t emphasize about his economic program is that it requires budget cuts far deeper and wider than even the $393 billion over the next six years that the Republican congressional majority favors. How his cuts would be achieved is something of a mystery. Dole has ruled out spending cuts in Social Security, defense (he intends, in fact, to increase military spending), Medicare (beyond the slowdown in the rate of growth that the GOP budget proposal envisages), veterans’ benefits and military pensions. And, of course, interest owed on the national debt is an obligation that must be met.

Taking these items off the table leaves only about 23% of the budget available for cuts. Dole has already targeted some domestic operations. He proposes, for example, to eliminate virtually all of the Energy Department’s spending, except on military activities, while reducing the Commerce Department’s budget--which funds agencies that include the National Weather Service and the Census Bureau--by more than half.

WHAT’S LEFT IN THE WAY of discretionary spending? Among other things, the Bureau of Prisons, the FBI, air traffic controllers, the Immigration Service, NASA, education, agriculture, parks, highways and drug interdiction.

The Dole plan rests on some economic assumptions that most economists question. It assumes, for one thing, that there will be no recession in the next six years. It further assumes that last year’s exceptionally high revenues from capital gains taxes, the result of an unusually healthy stock market, can be maintained for years to come. And it sets as a target a long-term 3.5% annual growth rate, far higher than what the Congressional Budget Office projects.

What Dole and President Clinton both are not telling Americans is that if the budget is to be brought into balance and kept there--a crucial point--there is no ducking the imperative to redesign how entitlement programs are paid for and what they pay out. By 2002, entitlements--chiefly Social Security and Medicare--will account for a staggering 60% of federal spending. So far both candidates have talked only about appointing bipartisan commissions to propose ways to “save” the programs.

Waiting until a presidential campaign to roll the drums and call for study commissions is not a stirring demonstration of leadership.