Bush Proposes Tax Cuts for Nearly Every American

George W. Bush’s presidential campaign unveiled a $483-billion list of family-oriented tax-cut proposals Tuesday that would benefit nearly every American taxpayer, from the low-income to the wealthy.

The Texas governor is scheduled to detail the proposal today in Des Moines, in his first major economic policy address. Although the highlight of the Bush plan is a tax break that would affect all wage earners, the self-described “compassionate conservative” is stressing its effects on what he calls “working families on the outskirts of poverty.”

Bush also proposed eliminating all inheritance taxes, doubling the tax credit for children to $1,000 annually and allowing the 80 million taxpayers who do not itemize their taxes to deduct charitable donations. He would make permanent the business tax credit for research and development, reduce the so-called marriage penalty, increase contribution limits on education savings accounts and allow retirees to work without sacrificing Social Security benefits.

“This is a part of an across-the-board lowering of tax rates,” said Joel Slemrod, director of the University of Michigan’s Office of Tax Policy Research. “By having so many different features, there’s goodies for very high-income people--in particular the elimination of estate taxes--and things that will be of interest to lower- and middle-income folks.”

Income currently is taxed in five brackets, with tax rates starting at 15% and ending at 39.6%. Under the Bush plan--if approved by Congress--the lowest rate would be cut to 10% and the highest rate reduced to 33%.

The amount of taxes workers pay depends on how much they earn; as income increases, workers pay different rates on different amounts, a practice that results in what economists call the marginal tax rate. Bush’s plan to cut marginal tax rates would simplify the system slightly, by cutting out one bracket and lowering all tax rates.

“By lowering marginal rates, that is probably the most helpful tax change that can be made to encourage work and let people keep their own money,” said Bush aide Ari Fleischer. “By creating a new 10% bracket, Gov. Bush’s plan will help low-income Americans get into the middle class.”

The campaign released details of Bush’s tax plan one day before his speech but on the condition that reporters not reveal them to Bush’s opponents. At first, the campaign even tried to prohibit reporters from calling economics experts to analyze the plan. But they backed down later in the day under pressure from the media.

The proposal falls far short of the impact taxpayers would feel from the 17% flat tax espoused by millionaire publisher Steve Forbes, who is running against Bush for the Republican nomination. Republican Gary Bauer has championed a 16% flat tax that would retain charitable and mortgage deductions, among other features.

The Bush campaign said the eight-point plan would cut $483 billion over five years, starting in 2002, if it were passed.

Over time, the Bush plan would trim taxes a bit more than the $792-billion, 10-year tax-cut plan that passed through the Republican-controlled Congress earlier this year. President Clinton, who called that plan “too big, too bloated,” vetoed it in September, warning that it would create “the worst recession since the Great Depression.”

Fleischer defended a tax cut, saying that “the governor believes that if you don’t return the money to the people who earn it, the politicians will just spend it on more government programs.”

In addition, said Fleischer, “the governor believes it is appropriate and wise to provide an insurance policy against any potential downturns [in the economy] and this can be achieved through a tax cut. And the third reason: President Clinton raised taxes too much. They should be lower.”

Bush’s proposal is based on the assumption that the economy will continue to grow by 2.7% each year and that, over the five years covered by his plan, the federal budget surplus would be $586 billion. This figure would not include money reserved for Social Security.

The Congressional Budget Office predicts the economy will grow at a pace of 2.3% from 2002 through 2004 and 2.5% during 2005 and 2006. The Bush campaign notes that the agency has generally low-balled its estimates and that, in fact, the economy has grown at a rate of 4% to 5% for the past several years. Fleischer said that the growth rate estimate is “conservative” and takes into account a possible economic downturn.

Robert B. Reich, former secretary of Labor under the Clinton administration, said that “it’s entirely possible that the surplus could be in that range” counted upon by the Bush proposal. But the size of the surplus, he said, is not the key issue.

“The real issue is twofold: Do you want to use the surplus for tax cuts, or do you want to use it to pay down the debt and invest in better schools and health insurance for people who need them?” Reich asked.

“And second, if you’re going to give a tax cut, who gets the benefits? On both of those criteria, in my view, the Bush plan fails,” he said. “If you’re going to give a tax cut, do it in a way that helps the bottom half. This doesn’t pass the test.”

Bush also would eliminate the marriage penalty, which penalizes some married couples by taxing them at a higher rate than some single wage earners. The average family, the campaign said, pays a $1,400 marriage penalty, which Bush would lower by restoring the 10% deduction for families with two wage earners.

Alan Auerbach, director of the Burch Center for Tax Policy and Public Finance at UC Berkeley, said the 10% deduction was introduced in 1981 during the first Reagan administration and was eliminated by the Tax Reform Act of 1986.

Along with institutionalizing the tax credit for business research and development, Bush’s plan to ease the marriage penalty is “not that controversial” and wouldn’t cost huge amounts of money, Auerbach said, although he disagrees with much of the rest of the proposal.

The Bush proposal would also increase the annual contribution limit for educational savings accounts from $500 to $5,000 per child and would allow senior citizens to work without sacrificing Social Security benefits. Right now, the campaign says, seniors lose $1 in benefits for every $3 they earn.

Said John Pitney, associate professor of government at Claremont McKenna College in Claremont: “This is the menu at the Republican diner. This is all good old reliable Republican proposals. It has some items for affluent Republican constituents and it has some items for the compassionate conservatives.”

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Times staff writer Janet Hook contributed to this story.