Dole Tax-Cut Plan: Does It Add Up?

Proposal may energize GOP, but not close gap

If nothing else, Bob Dole's effort to revive his campaign with a big tax-cut proposal could energize the GOP voter base heading into next week's party convention.

But whether the proposal unveiled yesterday in Chicago - highlighted by a 15 percent cut in individual income-tax rates - will boost Mr. Dole's poll ratings is another question. The overall economy remains strong, and many voters are wary of increasing the government deficit.

Indeed, Dole himself has been a leading skeptic of the supply-side policies he is now endorsing.

"Given the composition of the Republican Party, this is something Bob Dole had to do," says John Pitney, a political scientist at Claremont McKenna College. "If he didn't, he'd face criticism internally. But the campaign is mistaken to think this will close the polling deficit. It's like trying to jump-start a Cadillac with a 9-volt battery."

After two months of delay, Dole unveiled this cornerstone of his campaign in a speech yesterday. If elected president, Dole vowed, he would propose a 15 percent across-the-board tax cut, slash the capital-gains rate from 28 to 14 percent, and offer the $500-per-child tax credit that House Republicans have sought since gaining control of Congress.

Dole offered the tax cuts in the context of an overall strategy to balance the budget by 2002, but exact details of how he would pay for the $548 billion package remain fuzzy. About 27 percent of the cost would be covered by economic growth unleashed by lower taxes - a supply-side boom effect that Dole campaign communications director John Buckley insists is a "very reasonable assumption."

Another 18 percent would come from a proposed 10 percent cut in the administrative costs of nondefense discretionary government programs and the sale of some federal assets, according to Dole campaign figures. But the rest of the matching cuts, some $200-billion worth, remain unspecified.

Furthermore, as a past skeptic of supply-side policy, Dole now runs the risk of voters seeing the plan as an election-year ploy that contradicts his record and may jeopardize efforts to erase the deficit.

"Why do this now?" asks William Schneider, an analyst at the American Enterprise Institute. "This destroys Bob Dole's credibility on the deficit. It is a radical solution to which there is no problem."

Unlike Bill Clinton four years ago, Mr. Schneider points out, Dole does not have a sputtering economy to exploit. The economy is growing at 4.2 percent, according to the latest government figures, and both unemployment and inflation are low. Twice as many voters favor balancing the budget over tax cuts, Schneider says.

Linda DiVall, a Virginia-based GOP pollster, disagrees. "Tax cuts are significant," she says. They "are a clear winner."

They also may be a necessity. Tax cuts are the soul of the GOP message, and Dole still needs to shore up his own base within the party. The child credit and capital-gains reduction are favorites among party conservatives. They are measures that benefit business and the middle class.

But development of the plan also reflects divisions within the GOP. Initially, Dole's advisers said it would come out in early June. Later, word leaked that the campaign was struggling to put together a plan that wouldn't be out of sync with his reputation as a deficit hawk. Dole has always been at odds with the "growth wing" of the party, those who argue tax cuts can solve the deficit by spurring faster growth.

"We have long had a debate in our party about which should come first," Dole said. "Growth advocates say tax cuts first. Fiscal conservatives say a balanced budget first. I say they're both right."

Indeed, the supply-side issue is something that deeply divides economists themselves - even Republican economists. Paul McCracken, former Nixon-era chairman of the Council of Economic Advisors and now a professor at the University of Michigan School of Business, says that "fundamentally it works." But the idea is often "oversold," especially by those who claim that the government will take in as much revenue from increased economic activity as it loses in cutting tax rates.

His prediction if the Dole plan is enacted: Larger deficits "would mean for a while the Treasury would have to borrow more and it would create upward pressure on interest rates." Other GOP economists say they wish Dole had spelled out more spending cuts. "I am disappointed. It smacks of the 1980s revisited," says Bob Dederick, who served in the Commerce Department under President Reagan.

But supply-side economist Paul Craig Roberts is more supportive. "I think it is a positive development that Dole wants to cut taxes," he says, adding that he is amused the candidate has finally signed on with the idea. "Here is a guy who never liked it, but is trying to revive his failing campaign by grabbing the supply side. He must think it can't sink him any further."

THE FINE PRINT ON BOB DOLE'S TAX PLAN

The proposal is expected to save taxpayers $548 billion over six years without jeopardizing plans to balance the federal budget by 2002. It includes:

*An across-the-board 15 percent tax cut to be phased in over three years in 5 percent increments. It is expected to lower taxes for 90 million people.

*A $500 per-child tax credit that could be invested in a tax-free account for college tuition.

*A lowering of the capital-gains tax rate from 28 percent to 14 percent, and the repeal of the 1993 tax increase on some Social Security benefits.

*A provision to replace the tax code with a simpler system, and plans to end tax filing for 40 million low- and moderate-income Americans.

Staff writer Ron Scherer contributed to this report.