Path: bloom-picayune.mit.edu!snorkelwacker.mit.edu!americast.com!americast.com!americast-post Newsgroups: americast.twt.news From: americast-post@AmeriCast.Com Organization: American Cybercasting Approved: americast-post@AmeriCast.com Subject: Clinton re-aims on tax boost Date: Wed, 28 Oct 92 15:01:10 EST Message-ID: \SE A;DECISION '92: THE ECONOMY \HD Clinton re-aims on tax boost \SH Analysts see flaws in all three candidates' economic plans \BY Donald Lambro \CR THE WASHINGTON TIMES In the final weeks of the presidential campaign, Bill Clinton suddenly stopped using a crucial tax number that he cited for months as part of his "Putting People First" economic recovery plan. The Democratic candidate no longer says his plan to raise income taxes would hit only the "top 2 percent," after he learned that this would include taxpayers who earn about half the $200,000-plus in adjusted gross income that he proposed to target. According to the Internal Revenue Service, people earning $200,000 or more represent only 0.7 percent of all taxpayers, not the top 2 percent that the governor said in his stump speeches. According to a Congressional Budget Office tax model, those within the top 2 percent have incomes beginning at $102,000. And their taxable incomes, after the usual deductions are taken out, are even lower. When the Treasury Department and independent economists pointed that out earlier this month, Mr. Clinton stopped using the familiar "top 2 percent" line that he used since the New Hampshire primary. He now says he would raise taxes only on "those making over $200,000." The governor's apparent error illustrates the complexities of the economic proposals that are confronting the voters this year. It also raised questions among independent analysts about the quality of the economic advice he has been getting. While polls show the election is tightening up, the nation's troubled economy remains the dominant issue. The election seems likely to turn on how voters believe the economic plans of the three major candidates could nudge the economy in the right direction. Under President Bush, interest rates fell to a 20-year low, allowing millions of homeowners to refinance their mortgages at lower rates. Inflation is running at a modest 3 percent or less, and 117 million Americans are employed, an all-time high. But after the longest economic expansion in peacetime history in the 1980s, the economy fell into a recession after the 1990 budget deal that increased government spending and taxes. Since then, retail sales, housing construction, manufacturing, sales and economic growth have been weak, with the jobless rate now at 7.3 percent. Mr. Bush did get some good economic news in the past week. Both retail sales and housing construction were up last month, and the Commerce Department reported yesterday that the economy grew in the third quarter at an annual rate of 2.7 percent, the highest since the 2.9 percent of the first quarter. The economy remains weak in many sectors, however, and with more than 10 million Americans still out of work it seemed doubtful that the latest spurt of good news came in time to help Mr. Bush's political prospects. Polls show that nearly 80 percent of the voters remain pessimistic about the country's direction. Each candidate has a lengthy plan detailing his proposals to get the economy moving again. While there are some similarities among them, they represent dramatically different economic philosophies. President Bush, who repudiated his 1990 tax increase as "a mistake," now believes that too much federal taxation, regulation and spending weakened economic growth and that all three must be curbed. He proposed across-the-board tax cuts accompanied by matching cuts in spending. He wants a tax checkoff to be added to all tax returns that would allow taxpayers to specify that 10 percent of their taxes be applied to reducing the deficit. And he called for a balanced-budget amendment to the Constitution and a line-item veto to control spending. Mr. Bush proposed cutting capital gains tax rates to encourage investment, making the investment tax credit permanent, providing tax incentives for inner-city enterprise zones and offering tax breaks to help make health care more affordable. He imposed a moratorium on many business regulations. Mr. Clinton, on the other hand, believes that government must play an activist, "hands-on" role in the economy. He proposed tougher business regulations on the environment, mandated labor benefits such as family leave and automatic mini-mum-wage increases, more pump-priming government spending, and increased taxes to pay for it all. He would raise $150 billion in taxes by boosting the top tax rate to 36 percent, increasing the alternative minimum tax on personal income from 21 to 27 percent, levying a 10 percent surtax on millionaires and boosting taxes on foreign companies that invest here. He called for a national health care program to be funded in part by new payroll taxes and a new educational and training program to be financed by a 1.5 percent business tax. He wants an investment tax credit for new plants and equipment and a capital gains tax cut, but only for new investment. Business tycoon Ross Perot sees the deficit as the root of all evil in the economy and would cut spending and raise taxes substantially to virtually eliminate the deficit by 1998. He would reduce deficit spending by $711 billion over the next six years, including a 10 percent across-the-board cut in domestic discretionary spending and cuts in defense spending, the space station and other programs. Mr. Perot proposes some investment incentives, such as a graduated 50 percent reduction in the capital gains tax and a 10 percent investment tax credit, plus business tax credits for work-training costs and research and development. But he would also raise a number of taxes by more than $400 billion over a four-year period, raising the top tax rate from 31 to 33 percent and levying a 50-cents-a-gallon gasoline tax increase. Of the three, only Mr. Bush proposes that both taxes and the growth of government spending be cut to strengthen the economy, while Mr. Clinton and Mr. Perot propose that taxes be raised to either cut the deficit or pay for new spending. Several studies by economic writers and independent think tanks raised questions about all three candidates' plans. Robert Samuelson of Newsweek charged that the taxes Mr. Clinton proposes would not raise anywhere near the sums he says they will. He wrote, "The amounts he expects to raise are overstated, probably by a wide margin." For example, the Clinton plan says it would raise $45 billion over four years in new taxes on foreign subsidiaries doing business here. But Treasury and congressional budget experts say it would raise only $1 billion. "As a practical matter, he can't do what he promises without either higher taxes or higher deficits," Mr. Samuelson wrote. The prospect of higher deficits under a Clinton administration recently raised fears on Wall Street that caused a fall in the bond market. "The market still has a case of Clintonitis," Kevin Flanagan of the brokerage firm Dean Witter Reynolds said recently. On the other hand, Roger Altman, a Wall Street insider and possible Treasury secretary under Mr. Clinton, believes that the Clinton plan represents pump-priming that would "shift $50 billion a year from federal consumption spending to federal investment spending" and stimulate economic growth. Meanwhile, a study by the National Center for Policy Analysis (NCPA) on the impact of Mr. Perot's plan concludes that its tax increases would result in more job losses than its tax incentives would produce. "Unfortunately, the Perot plan puts too much weight on deficit reduction at the expense of economic growth," the study says. "It ignores the fact that the economy affects the deficit much more than the deficit affects the economy. "Even with the addition of his stimulus package, the economy would lose jobs, output and capital formation." The NCPA analysis, like a U.S. Chamber of Commerce study, finds that Mr. Bush's proposals to cut taxes and curb spending would, on balance, lead to higher economic growth. "Even though George Bush's economic recovery plan is less stimulative than many would like, it moves us in the right direction," the NCPA concluded. "If adopted, the plan would lead to more investment, more jobs and a higher output of goods and services." A Heritage Foundation study also concludes that Mr. Bush's plan "would give the economy a better chance of growing" than would the Clinton and Perot plans. But it also said: "Many of Bush's policy proposals, such as more federal spending for small businesses or job training, contradict other policies such as holding the line on spending." "Only one candidate, Mr. Bush, recognizes that too much spending, taxation and regulation have worsened the economy, even though a lot of it has occurred on his watch," said William MacReynolds, director of the Economic Policy Center of the U.S. Chamber of Commerce. ****BOX TAX PROPOSALS The major tax proposals being offered by President Bush, Democratic presidential candidate Bill Clinton and independent Ross Perot. BUSH * Reduce tax rates across-the-board by perhaps 1 percentage point. Bush says he will make up the lost revenue with $132 billion in money-saving proposals he has submitted but Congress has failed to enact. * Increase personal exemption by $500 for children under 18. Revenue loss of $23.8 billion over five years to be offset by spending cuts. * Provide a $5,000 tax credit for first-time home buyers. Revenue loss of $3 billion. * Permit taxpayers to direct up to 10 percent of their tax payments to debt and spending reductions through a check-off on their tax forms. * Cut the capital gains tax and index it for inflation. CLINTON * Increase tax rate from 31 percent to 36 percent on families making more than $200,000, increase the alternative minimum tax on the wealthy and impose a 10 percent surtax on taxable income in excess of $1 million. Increases revenues by $82.9 billion over 4 years. * Provide $60 billion in middle class tax relief by allowing taxpayers to choose between a higher children's tax credit or a cut in tax rates. * Tax foreign companies operating in the United States at the same rate as American firms. Estimated revenue increase of $45 billion over four years. * Limit tax deductions for executive pay and end tax breaks for companies that shut down U.S. plants and ship jobs overseas. * Provide a 50 percent tax exclusion for those making long-term investments in new businesses, extend the current tax credit for research and development and provide a new targeted investment tax credit. PEROT * Raise top tax rate from 31 percent to 33 percent to raise $33 billion over five years. * Raise gasoline tax by 10 cents per gallon each year for five years for total increase of 50 cents to raise $158 billion. Current federal tax is 14 cents. * Reduce home mortgage deduction from maximum of $1 million to $250,000 and disallow for second homes. * Tax employer contributions to health insurance of more than $335 per month for a family and $135 for a person. The Perot campaign estimates this tax increase along with the cap on mortgage deductions would raise $72.9 billion over five years. * Increase cigarette tax to 48 cents per pack to raise $18 billion over five years. Current rate is 20 cents per pack and is scheduled to rise to 24 cents on Jan. 1. * Cut deductions for business meals and entertainment to 50 percent from 80 percent. * Raise the amount of Social Security benefits subject to taxes to 85 percent from 50 percent for couples making more than $35,000 per year and individuals making more than $25,000 annually. This article is copyright 1992 The Washington Times. Redistribution to other sites is not permitted except by arrangement with American Cybercasting Corporation. 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