Candidates, Do the Math

Tax hikes in the early 1990s, declining government spending into the middle of the decade and a booming economy have turned huge U.S. budget deficits into even bigger surpluses. An estimated $2.2 trillion over the next 10 years, excluding Social Security, is a big, tempting pot for any politician. Working with Congress to set the proper priorities for spending the people’s money--and that gets to tax and spending policies--is one of the most important duties for a president. Candidates George W. Bush and Al Gore should clearly state their tax proposals, without misrepresentation.

Republican Bush would wipe out most of the extra revenue with a $1.6-trillion tax cut and hundreds of billions in new spending. Democrat Gore proposes a $500-billion tax cut and about $1.3 trillion in new spending. Bush’s plan fails in earmarking too much for tax cuts that Americans do not need or want, leaving little for paying down past debt, funding future obligations to Social Security and Medicare and investing in programs to improve education or access to health care. Most of his tax cut would benefit those earning on average $183,000 a year or more. Gore’s plan spreads benefits more evenly, but it saddles the government with huge new programs that, even in times of surplus, the country cannot afford.

Most Americans, as a series of Times polls show, are rightly skeptical about jumbo tax cuts. The economy is going gangbusters, but Social Security and Medicare will face huge unfunded liabilities when the baby boomer generation starts retiring in 10 years. Taxpayers would also rather see the federal debt paid down.

Bush says he can keep the economy going, solve Social Security problems in the long run, pay down debt, add new programs and give taxpayers a good chunk of their money back. Bush has complained that his tax plan has been “misunderstood.” Unfortunately, it was understood all too well. There is a catch in his calculations, starting with the Congressional Budget Office’s own inflated predictions of the $2.2-trillion anticipated surplus.

Even if tax revenues pour in at current levels--a big if--inevitable new spending by Congress will reduce the 10-year surplus to $1.5 trillion at best. That will not pay for Bush’s tax cut, plus $160 billion for the Republicans’ prescription-drug plan, debt reduction and the added--and potentially huge--cost of a Social Security overhaul. Bush’s proposed tax cut also worries economists. The Federal Reserve, concerned about growing inflationary pressure, is trying to cool the economy; a massive tax cut would stimulate spending and add heat.

Gore’s smaller $500-billion, 10-year package of targeted “tax cuts”--really social programs masquerading as tax cuts--and a laundry list of spending programs are harder to nail down. Providing tax incentives to encourage learning and helping the elderly defray the cost of prescription medications are worthy goals. But they must be measured against available revenue.

The most expensive of Gore’s proposals would add far more generous drug benefits to Medicare than Bush proposes--at a cost of $250 billion and potentially much more--and create a new 401(k)-style savings plan to spur individual savings. Gore estimates his Retirement Savings Plus plan would cost about $200 billion over 10 years, and Bush’s advisors put the price tag at closer to $1 trillion. Historically, the cost of new social programs has been difficult to contain. Medicare, when enacted in 1965, was expected to cost less than $10 billion, adjusted for inflation, by 1990; it cost nearly $67 billion by then.

That does not mean that Medicare, which largely alleviated the health care worries of the elderly, should not have been passed. The difference between projected and real costs does mean that candidates should talk about fiscal realities as well as social benefits of proposals. Gore hasn’t done that.

Bush’s tax plan falls short in the numbers as well as the vision. It allocates most of the available surpluses for tax cuts that will benefit few and undermine economic growth, and leave little, if anything, for debt reduction. It doesn’t add up. Gore’s priorities are better, but his package is larded with spending proposals that will turn temporary surpluses into large long-term obligations. The package doesn’t deserve to be bought if it can’t be sold with full disclosure.