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Gop Tax Plan Doesn’t Mean Tax Cuts States Would Have To Hike Taxes If They Want Good Water, Roads

Sat., June 24, 1995

Most Americans would gain tax cuts but lose government services under the budget plan that Republican congressional leaders have endorsed.

And if state and local governments try to make up for those lost federal services, you may very well spend money from your federal tax cut on higher state and local taxes.

The GOP budget plan aims to overhaul the way government works so that federal deficits can be eliminated by 2002. None of it will become law until Congress fleshes out the details in negotiations with President Clinton, who retains veto power. Yet the thrust of the GOP plan is likely to prevail, and the sweep of change it envisions would directly affect every American.

Under the Republican plan - which is expected to come to the House and Senate floors in a few days - most families could subtract $500 from their tax bill for each child 18 and younger.

Homeowners, investors in stocks and bonds, and businesses would pay much lower taxes than today on profits they earn from the sale of assets. And two-income married couples, when filing jointly, would no longer pay higher taxes than two single people with the same incomes.

Those and other tax breaks are the big goodies the deal would deliver - assuming congressional tax-writing committees follow the GOP leadership’s script - but it also would impose some sacrifices.

Medicare beneficiaries likely would have to pay higher medical bills, and more seniors would be funneled into “managed care” systems.

Riders of Amtrak trains and urban mass transit lines would have to pay more for those services or see their quality decline, or both.

Students who get federal loans would find them less generous, if even available.

And state and local taxpayers would have to pay higher tabs to clean their water and build their highways because the GOP plan would slash federal subsidies for such purposes.

States also would gain far greater discretion over the amounts and terms of their welfare payments.

“They are trying to devolve responsibility for making those decisions to the state and local governments,” said Susan Tanaka, vice president of the Committee for a Responsible Federal Budget, a bipartisan research group dedicated to ending deficits.

“States that decide these activities are important could replace (federal subsidies) through higher taxes or by altering priorities.

“Or they might decide they just don’t need those (subsidized programs) because they’re not high enough priority; it’s like free money from Washington,” Tanaka said.

The driving goal of the GOP plan is to eliminate federal deficits by 2002. Eventually, that should benefit all Americans indirectly, most economists agree, by lowering interest rates and spurring private investment in a more-dynamic economy.

Yet some Americans would benefit more than others under the GOP plan, and some would sacrifice more.

The GOP deal “would get to a balanced budget through disproportionately hitting programs that assist low-income people. The so-called bonus from the proposal through increased tax breaks will disproportionately benefit wealthy Americans,” said Isaac Shapiro of the Center on Budget and Policy Priorities, a liberal research center.

That conclusion is based partly on the GOP plan’s call to slash $190 billion over seven years from spending on domestic programs such as education, job training, environmental protection and grants to state and local governments.

But Dan Mitchell, an analyst at the Heritage Foundation, a conservative think tank, challenges liberals who say spending cuts will fall disproportionately upon the poor.

“If you believe as we do at Heritage that a smaller government will lead to a stronger economy, then even people who in the short term might wind up with fewer dollars in their pockets (because of the GOP deal), even those people should wind up better in the long term because the economy is growing stronger.”

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