Tax cut proposal: Is it good policy?

SUNDAY OUTLOOK

April 09, 1995|By Michael Dresser

The U.S. House of Representatives passed the Republicans' $189 billion tax cut bill last week, sending it to the Senate, where it is expected to receive a cool reception.

The centerpiece of the tax bill, which is opposed by the Clinton administration, is a $500-per-child tax credit for children in families earning $200,000 a year or less.

The measure also cuts the top capital-gains tax rate on profits from asset sales, expands depreciation write-offs for plants and equipment and rolls back the increased tax on higher-income Social Security recipients enacted in 1993.

Did the House act wisely in enacting so large a tax cut without specifying exactly how it would cut the nation's huge budget deficit? Is the child tax credit appropriate? And how would the bill affect the economy if it were to become law as written?

Michael A. Conte

Director, Regional Economic Studies Program, University of Baltimore

The most important thing to do is try to develop neutral tax policy, that is, one that collects the minimum to keep the government running efficiently while having little effect on social behavior. That's the true meaning of keeping government off our backs.

I see the central problem here as one of putting the cart before the horse -- that is, putting the social agenda before the revenue issue. Meanwhile they're avoiding probably the single most important issue of our time, which is deficit reduction. It is an abdication of responsibility to lower taxes before you have a zero deficit. It's a reflection that politics rather than economics has won the day. It's going to have a very negative impact.

Michael K. Evans

President, The Evans Group

The trend is to make the tax code less complicated, with fewer deductions and loopholes, and this seems to be going in the opposite direction.

I don't think anybody believes any more that the tax code will stimulate the economy because they'll just be offset by high rates. Look what happened to the bond markets after the Reagan tax cuts.

If the spending cuts had been spelled out, I might just have been able to support it. Without any spending cuts to offset the tax cuts, we're going to have a larger deficit. We've gone through that before.

We'll have spending cuts when we have them. They don't materialize out of heaven. When Congress says we're going to cut the Social Security cost-of-living allowance by 1 percent a year, then we'll have a spending cut.

Daniel Mitchell

Economist, The Heritage Foundation

If you look at the Congressional Budget Office numbers, you can balance the budget by 2002 if you hold the growth of federal spending to 2.98 percent a year with no tax cuts and 2.2 percent a year with the tax cuts. I don't think it's unreasonable to ask the politicians to hold the growth of federal spending to 2.2 percent a year.

The people who are opposing tax cuts realized this and they don't want to be subject to this additional spending discipline.

The child tax credit is not good economic policy and it's not bad economic policy. It's simply family and social policy. The erosion of the value of the personal exemption by inflation has resulted in a substantial tax increase to families with children.

Ultimately we should be going to the flat tax, but you don't bite off more than you can chew.

Philip A. Klein

Professor of economics, Pennsylvania State University

The notion in the United States that we're overtaxed has just taken off like wildfire. We're not overtaxed. We're taxed more at the state and local level than the federal level. At some point if you want services, you've got to pay for them. There's great resistance to paying for them now.

The tax-and-spend label has been applied far more successfully than the borrow-and-spend label. It seems to me borrowing and spending is a much less responsible course than taxing and spending.

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