Tax Cut Proposals

Commentary by Pete du Pont

When the messenger fails, blame the message. So says the conventional Washington wisdom.

Thus, Steve Forbes' strong support for the flat tax ironically had the effect of convincing everyone inside the Beltway that the flat tax is a loser because he failed to get the Republican presidential nomination. Never mind the fact that political novice Forbes came out of nowhere to win several primaries almost entirely on the basis of his support for the flat tax. Never mind that public opinion polls continue to show strong support for fundamental tax restructuring and reform of the Internal Revenue Service. Forbes lost, so the flat tax must be a losing message.

A similar "kill the message" mentality resulted from Bob Dole's defeat. He supported a 15 percent tax rate reduction and lost. Therefore, tax cuts are a bad idea; let's move on to something else. Never mind the fact that Dole never consistently sold his tax cut, constantly muddling that message with extraneous issues. All that matters is that Dole lost. Therefore, the tax cut must have been a bad idea.

Conservatives must reject this conventional wisdom outright. The tax issue has historically been the best issue that conservatives have had. So by taking the view that the flat tax and tax rate reductions are political poison, conservative Republicans in Congress have unilaterally disarmed. No wonder people are focusing so much attention on Newt Gingrich's troubles. What else have the Republicans given them to think about?

The conventional wisdom notwithstanding, people are indeed interested in tax reduction. A Harris Poll taken in December, for example, showed 30 percent of Americans saying that federal taxes are "much too high" and another 40 percent saying that taxes are "somewhat too high." Only 23 percent thought that taxes are "about right" and a mere 5 percent thought taxes are too low. Clearly, people will respond to tax cuts if they are given the opportunity to support an articulate, consistent tax reduction plan.

What people will not do is respond positively if they believe they are being pandered to or played for suckers. They know that tax cuts must be paid for honestly and they must be convinced that the tax cuts are real. And they are not going to fall for a tax cut proposal that does not appear to have some rational justification.

So how are people likely to respond to the tax plan put forward by Senate Republicans recently? This package would institute a $500 per child tax credit, liberalize Individual Retirement Accounts, cut the capital gains tax and lower the estate tax.

As sound as many of these provisions are, my feeling is that people are not going to overwhelmingly support this plan. The reason is that there is no apparent logic to the provisions - no guiding principle. They appear simply to be payoffs to the Republican Party's various constituent groups: tax credits for the Christian Coalition, IRAs for the middle class, capital gains for small business and estate taxes for farmers. Of course, Bill Clinton is doing the same thing, putting together a package of tax cuts to reward the Democratic Party's constituency.

It may well be that Clinton and Congressional Republicans will be able to cut some kind of deal, such as Clinton's deduction for educational expenses in return for the Republicans' capital gains tax cut. Everyone will congratulate each other and promise wondrous results.

It would be far better for conservatives to articulate a vision of what our tax system ought to look like and push for reforms in that direction. That vision ought to be something like the flat tax proposed by House Majority Leader Dick Armey and the Kemp Tax Commission (on which I served). If we accept that, then it becomes clear that adding new tax credits to the code does not move us in the right direction. Raising the personal exemption or cutting tax rates does. Thus we are in a stronger position to argue for fundamental tax reform while still delivering tax relief to the American people.

Articulating a vision of where we want to go would also strengthen the conservatives' hand in opposing Clinton's plans. Without putting forward a philosophy of taxation that explains why their plans are good and Clinton's are bad, conservatives risk appearing partisan and obstructionist.

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