Dole To Urge 15 Percent Cut In Income Tax Candidate Embracing Supply-Side Theories That He Once Ridiculed

Bob Dole will propose today cutting income tax rates by 15 percent, halving the capital gains tax and offering families a new tax credit as part of a $548 billion economic package he intends to make the centerpiece of his presidential campaign, officials said Sunday.

The package, which also includes new incentives for savings and education, represents what campaign officials said is the first step toward an eventual rewriting of the U.S. tax code, which would reduce rates further.

Dole’s proposal also will include a promise to balance the federal budget by 2002 and to enact a balanced budget amendment to the Constitution.

For Dole, the tax-cut proposal, coming as he nears an announcement of his vice presidential selection and as he awaits the opening of the Republican National Convention in San Diego next week, offers an opportunity to refocus attention on his campaign at a time when he badly trails President Clinton.

The proposal is likely to energize Republicans who fear that Dole has failed to set forth a compelling agenda.

But the plan also represents a substantial risk for the GOP standard-bearer: Even before Dole had completed it, the White House and other Democrats were lining up to denounce it as a return to the Reagan-era supply-side tax policies which Democrats blame for the huge federal budget deficits of the 1980s.

“If Bob Dole comes out with that kind of plan, he’ll deserve the gold medal for flip-flop, because for 35 years, he’s basically talked against just providing tax cuts without aiming at the deficit,” White House chief of staff Leon E. Panetta said on “Face the Nation.”

The plan’s estimated $540 billion cost during six years dwarfs the $122 billion estimated cost of the six-year tax cut already included in the congressional Republicans’ balanced-budget plan.

That means that to reach a balanced budget by 2002, Dole would have to find almost $420 billion more in savings or additional revenues than does the existing GOP budget plan, which Clinton has charged would impose unacceptable reductions in federal programs.

Dole’s advisers said he can pay for the tax cuts and still balance the budget, but they offered only a few examples of how he would do it.

The officials estimated that about 27 percent of the revenue loss from the cuts would be offset by the additional economic growth they would trigger. The rest of the money would come largely through spending cuts.

Dole officials said that constitutes a relatively conservative estimate of the plan’s potential effect on federal receipts. But Democrats quickly seized on the claim that the tax cut would pay for itself even partially.

During the 1980s, Dole was bitingly skeptical of supply-side claims that the Reagan tax cuts would generate so much economic activity - and so much tax revenue from that growth - that the cuts would add nothing to the deficit.

As the new chairman of the tax-writing Senate Finance Committee, Dole scaled back Reagan’s 1981 tax cut to 22 percent from 30 percent; then, in 1982, he pushed through one of the largest tax increases in history to curb the growing deficit.

Dole sneered at the time: “The good news is a bus load of supply-siders went over a cliff. The bad news is there were three empty seats.”

And White House economic adviser Gene Sperling has said the measures expected to be outlined by Dole today would cost more than $800 billion, rather than the $548 billion Dole claims.

Sperling called the expected package “a collection of gimmicks, double-counting and voodoo growth assumptions.”

Dole’s plan will project economic growth of 3.5 percent a year and higher wages for working Americans. The economy has been averaging 2 percent growth for the last decade.

Vice President Al Gore, in an interview with The Associated Press in Atlanta, where he was attending the Olympics, said: “Bob Dole’s economic plan would blow a hole in the deficit, raise interest rates, increase monthly mortgage payments for tens of millions of Americans and reduce long-term growth.

“The last time we gave a huge tax cut to the wealthy and didn’t pay for it, we quadrupled our debt in less than a dozen years,” Gore said.

Meanwhile, former Sen. Warren Rudman, R-N.H. - a Dole supporter - joined with former Sen. Paul Tsongas, D-Mass., and former Commerce Secretary Peter Peterson in taking out a full page ad in Sunday’s New York Times criticizing election-year tax cuts.

“It’s too early for Christmas,” said their open letter. It called suggestions that big tax cuts, like the ones Dole is proposing, would partially pay for themselves “technical voodoo.”

But Dole aides said there are various ways to find the money; they cited three possible sources as examples: a 10 percent cut in the non-defense administrative costs of the government, which the campaign valued at $60 billion over six years; the elimination of a number of Cabinet departments, which Dole also has recommended; and federal sales of the broadcast spectrum, valued by officials at about $34 billion over six years.

Officials said Dole also will pledge not to seek additional reductions in the rate of growth of Medicare beyond the $168 billion specified in the current Republican budget. They also said Social Security and defense will not be touched to pay for the tax cuts.

MEMO: This sidebar appeared with the story: A CLOSER LOOK Details of Bob Dole’s proposed tax cuts include the following elements: The across-the-board income tax cut, which would be phased in over three years in equal increments of 5 percent a year beginning in 1997. Over six years, it would cost a projected $406 billion. An estimated 90 million taxpayers would feel some effect from the cuts, officials said. A reduction in the capital gains tax rate from 28 percent to a maximum of 14 percent beginning in 1997. Officials estimate the six-year cost to the Treasury at $13 billion. A tax credit that would give families a $500 credit for each child up to the age of 18. That credit is valued at $75 billion over six years. Changes in individual retirement accounts. The first would authorize the establishment of spousal IRAs. The second would create American Dream Savings Accounts. Under this plan, taxpayers could set up savings accounts with after-tax dollars, but the income in the accounts would accrue tax-free. A cut in taxes on Social Security benefits to undo the increase enacted in 1993 when President Clinton and Congress raised the share of Social Security income subject to taxes from 50 percent to 85 percent. Dole would reduce the share back to 50 percent at a six-year cost of $27 billion. Washington Post