Bob Dole has laid out an economic growth plan that would balance the federal budget, cut taxes and control government spending. The Democratic convention this week will showcase the administrations response, as predictable as it is self-contradictory. President Clinton has claimed the Dole plan would blow a hole in the deficit. And the presidents second response? To offer his own set of tax cuts.
The debate over the nations potential for economic growth and the impact of tax relief deserves the serious attention of all voters. Yet political maneuvering threatens to diminish the substantive issues at stake for Americas economic future. Here, then, is a comparison of the specific numbers and assumptions behind the Dole and Clinton proposals for achieving a balanced budget in 2002.
It is important from the outset to consider whose budget numbers are used to project government outlays, revenues and deficit reduction over the six-year period covering fiscal years 1997-2002. The Clinton administration tends to cite numbers calculated by the Office of Management and Budget when it wishes to show progress toward reducing the deficit. According to OMB projections updated in July, the administrations budget plan would lead to a $61 billion surplus at the end of fiscal 2002.
Impressive, yes, but one should look at those same projections when calculated according to the Congressional Budget Office. The CBOs more conservative economic and technical assumptions govern the scoring of congressional budget proposals and serve as the basis for the numbers used in the Dole economic plan. When scored by the CBO, the Clinton plan achieves a surplus of $1 billionnot $61 billionat the end of fiscal 2002.
The Dole plan likewise projects a $1 billion surplus in the final year of the six-year budget period. But it borrows less during the intervening years; the deficit-reduction path under the Clinton plan requires $585 billion in debt financing, while the Dole plan requires only $535 billion.
Administration spokesmen have been denouncing the Dole economic plan as full of cuts and slashed programs. But guess what? So is the Clinton budget. According to the 1997 budget prepared by the OMB, the presidents plan saves $124 billion in Medicare, strengthening and improving the program and additionally saves $59 billion in Medicaid, reforming the program. Given the increasing financial burden of social spending programs, these are laudable goals. But its pure hypocrisy for the administration to denounce Dole-Gingrich Republicans for pushing similar proposals.
For the record, both the administration budget and the one adopted by Congress in Junea budget that would be the initial departure point for a Dole presidencyallocate exactly the same amount, year to year, for Social Security. Adding in Medicare, Medicaid, welfare reform, the Earned Income Tax Credit and other social programs mandated by law, the difference in total spending between the two proposals amounts to less than 1.5% on nearly $6 trillion in projected government spending over the next six years.
Democrats have been criticizing the Dole plan for counting on allegedly unrealistic cuts at the Commerce and Energy departments. But these cuts are perfectly reasonable. Some $32 billion could be saved by cutting one-third of the Energy Department budget, bloated by outdated programs stemming from the 1970s energy crisis. Defense and basic science programs would not be affected. An estimated $15 billion in savings at the Commerce Department would derive from eliminating corporate welfare projects in the Economic Development Administration, which use taxpayer funds to promote U.S. products abroad. Weather and oceanic research functions, along with census data collection, would be maintained.
Its a hoot to hear Democrats denounce the Dole campaign for using budget gimmicks. While the Dole plan seeks to balance the budget by cutting bureaucracy, the Clinton budget counts on an extra $60 billion in tax revenues from closing corporate loopholes over the next six years. At the same time, the administration is proposing some $100 billion in myriad targeted tax breaks designed to induce economic growth. The only way the Clinton budget would balance in 2002 under CBO assumptions is if the tax cuts expire on Dec. 31, 2000.
Whereas the Clinton tax cuts are capricious and temporary, the Dole tax cuts are part of a broader agenda for a fundamental and permanent transformation of the U.S. tax code. Mr. Doles objectives are to end governments distorting influence over individuals economic decisions and to benefit all Americans.
Heres another instance of Clinton budget hypocrisy: Administration spokesmen have insinuated that the Dole plans estimate of $34 billion in revenues from the auction of broadcast spectrum is unrealistic. What the spokesmen dont mention is that the Clinton administration is counting on $44 billion in spectrum auction revenues.
Finally, there is the issue of growth. Detractors of the Dole plan insist that its architects expect tax cuts to pay for themselves. In reality, the Dole plan assumes increased economic growth will make up for only 27% of the revenues lost by tax cuts.
The projected revenues anticipated from the income growth effect in the Dole plan are the outcome of additional savings and investments by the private sector as the result of lower taxes. Contrary to Mr. Clintons assertion that mortgage and credit card rates would rise under the Dole plan, the increased capital formation would tend to lower interest rates. The Dole plan also expects increased work effort, since individuals would keep more of their pay. Regulatory and litigation reforms are also expected to improve the nations economic performance.
A key assumption underlying the Dole plan is that a 50% cut in the capital gains tax rate would encourage investors to channel financial resources into more productive investment opportunities, creating more high-paying jobs. If the economy grows at modestly increasing rates from 1997 to 2002, starting at 2.5% next year and rising incrementally by 0.2% each year until it reaches 3.5% growth in 2002, the additional revenues would exceed current CBO expectations by some $200 billion. Thats far in excess of the $147 billion income growth effect presumed in the Dole plan.
Critics insist the Dole plans capital gains tax reduction is aimed at benefiting the rich, yet Internal Revenue Service data for 1993 show that 57% of all tax returns reporting capital gains came from taxpayers with incomes below $50,000 per year. And many low- and middle-income parents are expected to apply the Dole plans $500 per child tax credit to education. This will enrich individual lives, at the same that it enhances prospects for future economic growth.
In all, the Dole plan includes $548 billion in tax cuts plus $271 billion in deficit reduction to achieve a balanced budget in 2002. The plan calls for saving $393 billion, or 3.6%, of projected government expenditures of $10.8 trillion from 1997 through 2002. It also anticipates that $147 billion (a 27% income growth effect) in tax revenues would be generated during the next six years as the result of the tax cuts and education and employee training initiatives.
More Than Enough
This isnt based on a rosy scenario. Economic growth in the first half of 1996 has raised projected 1997-2002 revenues by $80 billion since the adoption of the congressional budget plan (on which the Dole agenda is based). This actually relieves some of the need for additional cuts in government spending. Nevertheless, the Dole plan still calls for six-year savings of $217 billion through downsizing cabinet departments, selling broadcast spectrum, and cutting nondefense government costs by 10%. Total savings of $610 billion plus the total additional revenues of $227 billion equals $837 billionmore than enough to pay for the Dole tax cuts and balance the budget in 2002.
Keep in mind, though, the Dole plan is more than numbers and economic assumptions. Its ultimate rationale is grounded in moral philosophythe recognition that individuals are entitled to the fruits of their labor. The plan not only seeks to revitalize the American economy through enhanced growth, but more important, it aspires to unleash the American spirit. While Bob Dole and Bill Clinton disagree on the means, surely both can endorse the goals of expanded opportunity and greater prosperity.