De-emphasizing deficit worries, Dole embraces supply-side economic policy

September 06, 1995|By Los Angeles Times

WASHINGTON -- In a major speech on economic policy in Chicago, Kansas Sen. Bob Dole set aside his long-held concerns about the deficit and embraced the major tenets of supply-side policy: a "flatter tax system," abolition of the Internal Revenue Service and a constitutional amendment requiring a super-majority in Congress to raise taxes.

The speech marks a milestone for Mr. Dole, for years derided by supply-siders, in a put-down made famous by Rep. Newt Gingrich, as the "tax collector for the welfare state." But the landmark is equally significant for the Republican Party itself.

After years of debate between advocates of traditional fiscal conservatism, who emphasized the need to cut the deficit even if that meant raising taxes, and supply-siders, who argued that tax cuts would generate enough growth to pay for themselves, the last leading figure of the traditional camp has surrendered.

Mr. Dole did fuzz over the terms of his tax proposal, and some veteran supply-siders question the sincerity of the old deficit hawk's conversion to the pro-growth school. Nonetheless, the prolonged debate appears to be over -- at least for now.

"The Republican Party now generally accepts the argument of supply-siders that tax cuts have beneficial effects," said Jude Wanniski, an economic consultant and one of the earliest and most forceful proponents of the supply-side idea. "That argument has been concluded and it's now part of political history."

Ahead, in the general election campaign of 1996, Republicans face another and in some ways more challenging debate, this time with the Democrats, who will certainly argue that the tax cuts enacted during Ronald Reagan's presidency came nowhere near paying for themselves and saddled the nation with enormous federal deficits.

Supply-side adherents attribute much of their political success in the GOP to the fateful decision by the last Republican president, George Bush, to break his "read-my-lips" pledge not to raise taxes.

Mr. Bush once famously ridiculed supply-side theory as "voodoo economics" -- a phrase he later tried to disavow. It is now an article of faith among Republicans that Mr. Bush's decision to raise taxes wiped out his chance of re-election.

Where once supply-siders were considered radical for talking of income tax cuts, leading Republicans -- such as House Ways and Means Committee chairman Bill Archer of Texas and presidential candidate Sen. Richard G. Lugar of Indiana -- now advocate eliminating the income tax altogether in favor of a national sales tax.

House Majority Leader Dick Armey of Texas recently introduced a plan to eliminate all tax deductions and credits and impose a single 17 percent rate on earned income.

Texas Sen. Phil Gramm, Mr. Dole's best-financed rival for the presidential nomination, has pledged that if he is elected he will see to it that a flat tax, which advocates claim means lower taxes for many and simpler taxes for all, "will be fully in place by Jan. 1, 2001."

Mr. Armey, in a recent speech, vigorously defended eliminating the home-mortgage interest deduction as part of his flat tax plan, noted John Makin, director of fiscal policy studies for the American Enterprise Institute, a conservative think tank.

"That's a big change," Mr. Makin said. "In the mid-1980s when you talked like that, they wanted to put you in a straitjacket."

While the supply-side ideology has captivated GOP politicians, many economists remain wary, questioning the wisdom of adopting a rigid position ruling out any sort of revenue increase.

"If I were running for something I would try to retain my flexibility," said Rudolph Penner, director of the Congressional Budget Office in the mid-1980s.

Similarly, Herbert Stein, chairman of the Council of Economic Advisers under President Richard M. Nixon, takes a dim view of much of the supply-side doctrine.

"They can win the nomination that way," Mr. Stein said of Republican candidates who have bought into the flat tax and similar nostrums.

"But when they get into office, they still have to face the real problems of the country."

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