Clinton switch on taxes would not be bad idea

ON THE POLITICAL SCENE

March 11, 1995|By JACK GERMOND & JULES WITCOVER

WASHINGTON -- President Clinton has been offered an unexpected political opportunity by growing resistance among both Republicans and Democrats in Congress to passing a tax reduction bill this year. It is a chance to demonstrate the kind of leadership that, opinion polls show, voters have not seen in the president in his first two years in office.

A declaration by Clinton against tax reduction now would evoke some predictable criticism, of course. He would be accused of another reversal of position. But in this case, he could present himself as someone willing to make the hard choices -- at a time when that may be the popular course as well.

From the outset, the notion of tax reduction this year made no sense in light of a broad consensus among politicians and economists alike that the best way to strengthen the economy was to reduce the federal deficit.

But Republicans in the House of Representatives had made a rTC middle-class tax cut part of their "Contract with America," and the votes had no sooner been counted Nov. 8 than Clinton played me-too politics by advancing his own program as the "middle-class bill of rights."

In retrospect, many Democrats in Congress believe Clinton missed a chance right then to demonstrate leadership by rejecting the whole idea of tax reduction at a time when the economy is healthy and the last thing needed is some measure to add to the deficit. He could have said, these Democrats argue privately, that he recognized the political popularity of cutting taxes but wanted to take the responsible course.

Instead, Clinton projected an image of himself as a president intimidated by the new Republican majority and ready to enter a bidding war.

A reversal now might not be an easy sell for the White House because Clinton has reversed himself too often on other issues. But there are new factors in the equation that might give Clinton political cover -- most notably, the belief that concern over the deficit has been a key factor in the sharp decline of the dollar in foreign currency markets. Clinton could argue that the prospect of higher interest rates would mean that taxpayers would lose as much there as they might gain from a tax bill.

The Republican plan does have some politically attractive features. The most important would give taxpayers with incomes of up to $200,000 a year a tax credit of $500 per child in the family. Another would allow taxpayers to invade individual retirement accounts without having to pay taxes on the money if it were used for such things as education or health care.

But the Republican plan also includes a 50 percent reduction in capital gains taxes and tax breaks for business. The total cost of the reductions could reach $700 billion over the next 10 years, a staggering sum for a government ostensibly committed to eliminating a deficit of $1.8 trillion. And there is no plan yet for paying it off with spending reductions.

Moreover, the Republican plan is clearly tilted sharply enough toward affluent taxpayers so that Clinton could veto it with assurances he would have the votes to sustain the veto.

All of this would mean, of course, that the president would have to abandon his own plan. But the reality is that the Republican Congress is never going to pass his plan anyway. On the contrary, the only hope for the White House might be a negotiated settlement with the congressional Republicans on some compromise.

The signs of trouble for tax cuts are already apparent in the Senate, where the Republicans don't consider themselves bound by any contract. Majority Leader Bob Dole has raised some questions about the wisdom of such a course right now, and so has Sen. John Chafee of Rhode Island, an influential member of the Senate Finance Committee.

And Democrats already are muttering among themselves that this is not the time for tax reduction. Minority Leader Tom Daschle, for example, said the other day that cuts would "compound our problems" in dealing with the deficit. Other Democrats privately offer an even more blunt assessment: that the whole idea is a dead issue right now.

Clinton's continuing problem with the electorate is that he is seen as too willing to bend with the winds for political reasons. He added to that perception when he jumped on the tax cut bandwagon after the election. Now he has a chance to make amends.

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