Dole points to tax cut in N.J. as preview of his plan for U.S. Republicans, economists express some doubts

Campaign 1996

August 23, 1996|By Karen Hosler | Karen Hosler,SUN NATIONAL STAFF

RUTHERFORD, N.J. -- Standing beneath a banner that said, "New Jersey Proves Tax Cuts Work," Bob Dole promised yesterday to do for the country what Gov. Christine Todd Whitman has done for her state.

"Your economy is growing, your taxes are lower, your budget has registered a surplus" -- all thanks to Whitman's 30 percent tax cut, the Republican presidential nominee told hundreds of New Jersey residents gathered in a tree-shaded park for a noontime rally.

"We can make it happen in America," Dole said. "We are going to prove at the federal level what Christie Whitman proved at the state level: that tax cuts work."

His mostly Republican audience was supportive of the candidate, but not particularly fired up by his promise.

New Jersey's tax cut has not been a panacea for the state's economic problems, many said, and they were skeptical about Dole's ability to pull off a similar move at the national level.

"The tax cut made people feel good: You could see it right away in your paycheck," said John Kirkland, 48, a shipping broker. "But I don't think it had much impact on the economy. The New Jersey economy is affected by many things at the national and international level. We've lost a lot of manufacturing jobs. A little tax cut isn't going to fix that."

Dole called upon the popular New Jersey governor, who appeared with him at the rally, to enhance the credibility of his own 15 percent tax cut proposal by showcasing her experience.

Whitman ran on a tax-cut pledge in 1993, and that pledge got the credit for her come-from-behind victory over incumbent Democrat James J. Florio.

After she took office, the new GOP governor surprised the naysayers by following through on her promise, winning enactment by the state legislature of a 30 percent cut in the state's income tax rate along with some curbs on state environmental regulations.

Whitman was able to keep the budget in balance -- a requirement in her state, but only a goal at the federal level -- by making changes in the state pension system and putting a ceiling on state aid to municipal governments.

As Dole said, New Jersey's economy has grown -- slightly faster than its neighbors, but not as much as most of the rest of the nation.

"The tax cut hasn't helped as much as people had hoped -- the economy is national, after all," said Jim Marotta, 44, a lawyer from Totowa. "But I think we're better off than we would have been without it."

Whitman has also been criticized for the actions she took to finance the cuts, with opponents charging that she was simply pushing the tax burden onto local governments and future generations.

"Christie Whitman raised state pension funds to pay for her tax cuts," said Joe Lockhart, chief spokesman for the Clinton campaign. "Can you imagine what [House Speaker] Newt Gingrich will do to the budget to pay for Bob Dole's risky economic scheme?"

Economists skeptical

Independent economists also have raised concerns about the Dole proposal.

"We think it has two basic risks," said Diane Swonk, deputy chief economist for First Chicago-NBD Bank.

"On the economic side it calls for a doubling of productivity, which is very hard to get, especially with tax cuts that encourage consumption over investment," she said. "There is also a political risk, when you put tax cuts first before spending cuts, that the spending cuts will never be made."

That's what happened in 1981 when then President Ronald Reagan tried to get spending cuts through a Congress controlled by Democrats to make up for the revenue lost by his tax cut that year. The economy grew at a thunderous pace, but so did the budget deficit.

Dole says his experience with spending cuts would be different because he expects to have a GOP-led Congress as well as the newly-passed line-item veto.

'Supply-side' convert

"We're going to balance the budget while cutting taxes. With a pro-growth Republican Congress, it's merely a matter of the president's will," he told the New Jersey gathering. "If you have it, you can do it, and I have it."

Dole expects about one-third of the cost of his $550 billion tax-cut program to be offset by the additional tax revenue that would result from a faster growing economy.

Dole's embrace of this controversial "supply-side" approach to economics -- of which his running-mate Jack Kemp is a chief proponent -- comes after a long career during which Dole rejected the notion of spending money before it is certain to be collected.

But sticking by his previous approach would require Dole to make an additional $145 billion in spending cuts over six years on top of the $580 billion goal he has already set for himself to reach a balanced budget by 2002.

"This is a realistic proposal," said Robert E. Lighthizer, Dole's top aide when he was chairman of the Senate Finance Committee, who helped put together the Dole economic plan.

Kemp, who is campaigning with Dole through Labor Day, said there's no reason to have to justify saving people money on taxes.

"This administration makes you feel guilty about keeping your money in your pocket," he said in New Jersey. "They are the ones who should feel guilty."

Pub Date: 8/23/96

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