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 TIME CNN/AllPolitics CNN/AllPolitics with Congressional Quarterly

The Bush tax tango

He wants to please rich Republicans and keep his pledge to be compassionate. Can he pull it off?

By James Carney/Washington

August 2, 1999
Web posted at: 11:45 a.m. EDT (1545 GMT)

TIME magazine

At 10 A.M. E.T. last Thursday, nine of the nation's top conservative economists stopped what they were doing, placed a call to the same telephone number and spent the next 90 minutes debating how to save George W. Bush from his own party. Not that any of the economists--all good Republicans--put it that way. But with the G.O.P. in Congress engaged in a tax-cutting frenzy that has perturbed even the imperturbable Alan Greenspan, the pressure on Bush's team of number-crunching advisers to devise an economic plan for the presidential front runner has intensified. Their task: to satisfy the Republican Party faithful's lust for tax cuts while making good on Bush's promise to be a "compassionate conservative." That means a plan that does more than bestow a huge tax rebate on the wealthiest Americans. Bush "wants to make sure that the people on the outskirts of poverty are not left behind," Michael Boskin, a member of the economic team, told TIME. "And you can expect that he will propose policies to do something about that."

Though Bush won't unveil his plan until the fall, team member Martin Anderson, who helped craft Ronald Reagan's tax cuts in 1981, told TIME last week that Bush's plan "is going to be significantly different from what the Republicans are doing now." Of course, the Texas Governor wants to cut taxes for the middle and upper classes, but sources tell TIME his plan will feature a series of proposals aimed at lowering the tax burden on families earning between $12,500 and $30,000 a year. When poor families begin to make more money, they gradually lose benefits like housing subsidies and the Earned Income Tax Credit, which is designed to lift low-income workers out of poverty. As benefits are phased out and income taxes kick in, families in this income group often find themselves owing the government more than 50[cents] for each additional dollar they earn. "Some of the highest marginal tax rates are paid by people with low incomes," says one of Bush's economic advisers. "The Governor wants us to fix that."

Searching for the perfect tax cut

Bush's plan?
Trim income tax rates, cut estate "death" tax, ease marriage penalty, aid low-income workers
Targeted to G.O.P. faithful, plus bleeding-heart centrists

House G.O.P. plan
Cut all income taxes 10%, slash capital gains tax 25%, abolish "death tax"
Targeted to Middle- and upper-income voters

Gore's plan
Ease marriage penalty, set up 401(j) accounts for education and job training, pay for Medicare drug benefit
Targeted to Soccer moms, senior citizens

A tax plan that helps low-income Americans goes deep into Democratic territory and sounds like the perfect policy component to fit Bush's centrist rhetoric. The problem for Bush and his economic team is that none of the fixes they are considering are easy or cheap. Push back the phase-out of benefits to higher income levels, and the number of families receiving tax credits and subsidies explodes. Increase the size of standard deductions and child tax credits, and watch revenues shrink. Reduce the number of tax brackets while eliminating loopholes, and the lowest-income families may not be any better off. "It's a lot easier to talk about in general terms than it is to design policies that meet those objectives," says Robert Reischauer, former head of the nonpartisan Congressional Budget Office.

Bush has another problem. Two weeks ago, he told Iowa public television that if he were President, he would sign the 10-year, $792 billion tax cut passed by the House. That bill calls for a 10% across-the-board income tax cut and a 25% reduction in the capital gains tax--measures that disproportionately favor the wealthiest Americans and that, by their sheer size, have rattled even some fiscally prudent Republicans. (The Senate passed its own tax cut last Friday, which also totaled $792 billion.) That may explain why some Bush advisers last week played down the endorsement's significance. "Can you imagine the Republican front runner not endorsing a tax cut passed by a Republican Congress?" asked one. But Al Gore wasted no time slagging the Texas Governor. "You can't squander the surplus and keep our economy strong," Gore said Friday. "You can't have your cake and eat it too."

But Bush's economists believe you just might be able to. Led by Larry Lindsey, a former Federal Reserve governor, Bush's team is like a conservative All-Star squad from the Reagan-Bush years, a combination of supply-siders like Anderson and Harvard's Martin Feldstein, with do-no-harm pragmatists like Boskin. "There are no disagreements on where we're going," says Anderson. "But there are lots of discussions about the best way to get there."

For Bush, getting there means having a credible plan that the G.O.P. can rally around--and that will attract swing voters--after congressional Republicans finish brawling with the White House over this year's budget. It won't be easy. But that's what conference calls were invented for.


Cover Date: August 9, 1999

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