A 'Class Warfare' Political Campaign?

THE Democrats, say the Republicans, are promoting "class warfare."Whether that's so or not, House Majority Leader Richard Gephardt has promised to introduce legislation next year which will cut taxes for the middle class and boost taxes substantially on the rich. Mr. Gephardt will draw considerably on the work of Robert McIntyre, director of Citizens for Tax Justice, a liberal think tank in Washington, D.C. In his latest study, Mr. McIntyre maintains: "As a result of the Borrow and Squander 1980s and the outrageous 'supply-side' tax shift: * "Tax cuts for the richest 1 percent of the population now cost the Treasury more than $160 billion a year, while * "Middle-income families pay hundreds of dollars more in taxes each, and get back an average of $1,260 less in traditional government services." Such a Gephardt bill undoubtedly will be vetoed by President Bush. Nonetheless, the bill could magnify in the 1992 campaign the only issue that offers any hope to a Democratic presidential candidate, should the economic recovery have progressed sufficiently to provide some sense of renewed prosperity in the county by next summer - the fairness of the economic/taxation system. The legislation referred to by McIntyre, President Reagan's Economic Recovery Tax Act of 1981 (ERTA), already shows signs of being the centerpiece for the economic debate and polemics of the 1992 campaign. It could fill the role that President Franklin Roosevelt's New Deal played for election campaigns in the 1950s and 1960s. Except that Republicans then were attacking the New Deal legislation; now they are praising the Reagan measure. For example, Sen. Robert Kasten Jr. (R) of Wisconsin introduced a resolution in Congress last month to commemorate the 10th anniversary of ERTA. In a letter, he says: "Unfortunately, some critics in Congress and in the media continue to discredit the accomplishments of the 1981 tax cuts. They claim that during the 1980s, 'the rich got richer and the poor got poorer.' In reality, the rich did get richer, but the poor got richer too." The 1981 act performed as promised, he writes. Over 20 million jobs were created. Inflation, averaging above 12 percent during the Carter administration, has been cut by more than half. Interest rates are about half their double-digit levels of 1980. The economic expansion lasted 85 months. Without the 1981 tax cut, the average American family would pay $1,500 more taxes per year. And so on. Contrariwise, McIntyre says the 1981 act didn't deliver on the promises of its supply-side supporters. It didn't generate enough new tax revenues to balance the federal budget and pay for an enormous increase in defense spending at the same time. Rather, the national debt has grown $2 trillion, and now exceeds half of national output, up from one quarter at the end of the 1970s. Whereas the Reagan administration claimed that ERTA would boost business investment by 11 percent per year through 1986, busine ss investment grew only at a 2 percent annual rate. And the national savings rate has hit a record low. The 1981 tax cuts have been shrunk somewhat by measures in the 1980s and the budget package agreed to by the Democratic-controlled Congress last fall. But Gephardt's bill could make for the first time "a big issue," as McIntyre put it, of the tax fairness subject. His study finds that the after-tax income of the richest 1 percent of the population jumped by "a staggering 136 percent" in constant dollars between 1977 and 1992. Those "superrich" will get an average 1992 tax cut of $83,457 each - a 30 percent tax reduction compared with what they would owe under the 1977 tax rates, he says. He advocates various measures to close federal income tax "loopholes" used mostly by the rich and a hike in marginal tax rates for the rich - say to 40 percent. Taxpayers undoubtedly will be pummeled by a host of economic claims and charges from both sides over the year to come. They may well be difficult to sort out. "On a scale of ethics, lawyers are not high, but economists are below them," says McIntyre half seriously.