December 27, 2007
For the Republican presidential field, economic policy often comes down to two words: tax cuts.
From extending President Bush's 2001 and 2003 income tax cuts to slashing corporate income taxes to eliminating the inheritance tax to cutting taxes on investments, none of the Republican candidates on Michigan's Jan. 15 ballot is without some proposal for reducing federal taxes.
And with a convenient foil in Gov. Jennifer Granholm, many of the GOP candidates have sought to contrast their own tax cut plans with the state tax increase passed this year to close Michigan's budget deficit.
The emphasis on lowering taxes and spending matches the strong preference of Michigan Republican voters.
In a Detroit News-WXYZ Action News poll this August, three-quarters of Michigan Republican voters said they favored extending the Bush tax cuts and cutting taxes more. And GOP voters such as Phil Pawlusiak say Republicans in Washington have lost their way on federal spending.
"I don't like to see overspending and I'm a little put off by the spending spree that they went on," said Pawlusiak, 34, a software engineer from Macomb Township.
But if the candidates are eager to prove their tax-cutting bona fides, budget experts say they're far less vocal about how they would cope with the loss of revenue their proposed cuts would bring.
They offer fewer specifics about how they would cut federal spending, and what details they do offer tend to be nibbles rather than gulps out of the government's $3 trillion budget.
And in several cases -- most notably that of former New York Mayor Rudy Giuliani -- they make dubious claims that their tax-cut plans could actually increase how much tax money the government collects.
"If the Republican candidates don't want to put (taxes) on the table, it's incumbent on them to talk about the types of spending cuts they would make," said Robert Bixby, executive director of the Concord Coalition, a nonpartisan group that advocates for a balanced federal budget. So far, Bixby said, the GOP field has failed that test.
There is remarkable unanimity on a few points. Each of the major GOP contenders favors making permanent the Bush tax cuts, which included various sunset provisions that made them temporary. All would eliminate the inheritance tax -- or "death tax," in Republican tax-cut rhetoric.
All would make changes to the Alternative Minimum Tax, a decades-old provision of the tax code designed to ensure that wealthy taxpayers would pay some tax even if exemptions and credits otherwise would eliminate their entire tax burden. The original law did not include adjustments for inflation, and as incomes have grown, so have the number of families under the AMT -- from about 2.3 million in 2003 to more than 30 million projected in 2010.
Beyond those major points of agreement, each of the candidates proposes significant additional cuts. Romney, Giuliani and Thompson have emphasized cuts in the income tax on corporations, which they say make the United States uncompetitive with other nations. Romney would eliminate all taxes on savings -- dividends and capital gains on investments, among other items -- for taxpayers below $200,000 in income.
"Tax policy is central to economic policy," said James Bognet, a Romney policy aide. "Extending current tax cuts and making new tax cuts are the key things to make sure our economy gets stronger over the next president's term."
Huckabee is the leading proponent of what supporters call the "Fair Tax," a plan to replace federal income and payroll taxes with an across-the-board federal sales tax. But critics point to analysis showing the plan would shift the federal tax burden from wealthy taxpayers to those in low- or middle-income brackets. And some economists suggest that the tax would have to be so high -- 30 percent or more -- that it would create a black market of businesses and consumers seeking to avoid it.
Along with tax cuts, the GOP candidates are locked in a fierce competition to win over voters concerned about the growth in federal spending. Here, though, specific plans are more difficult to come by, and often fall short of the rhetoric.
One notable exception: Ron Paul, the Texas congressman who has pledged to eliminate wide swaths of federal programs, cutting whole departments and vastly reducing the scope of government. Paul is the exception who in many ways proves the difficulty of making big budget cuts: Each of his proposals would slash or eliminate a program with substantial political support.
Each of the candidates points to some specific measures. Giuliani, for example, focuses on cuts in the federal work force and improvements in efficiency.
"His basic view is, having done it in New York, you can do better (at the federal level) for less money, if you have somebody who is relentless and wants to make that a prime priority for their administration," said Michael Boskin, Giuliani's top economic adviser.
Romney says he would limit growth in all federal programs aside from defense spending and entitlements to increases one percentage point below inflation. And McCain has emphasized his long Senate record as an opponent of congressional earmarks -- specific spending items requested by members of Congress that he regularly decries as wasteful pork-barrel spending.
But budget analysts point out that each of these items is small compared to the overall budget. The nondefense discretionary items Romney says he would cut make up less than a third of federal spending. McCain has railed against the nearly 9,000 earmarks in a massive spending bill just passed this month, but even at an estimated $7.5 billion, those earmarks make up less than 2 percent of the $500 billion-plus bill.
"You're just not going to do it by looking at waste and abuse or by cutting discretionary spending," said the Concord Coalition's Bixby. "Everybody who looks at the budget understands that's a dodge. It's not anywhere near enough to deal with the long-term problems."
Those long-term problems revolve around entitlement programs -- those that guarantee benefits to recipients, such as Social Security and Medicare.
Estimates suggest that as the baby boom generation ages, money flowing out of Social Security could rise above the amount coming into the system in 2017. And in their annual report to Congress,the federal trustees who oversee both programs say "Medicare's financial difficulties come sooner -- and are much more severe -- than those confronting Social Security."
Fred Thompson has proposed the most detailed Social Security fix, calling for changes that could slightly reduce benefits for wealthier recipients. He and most of the other candidates have endorsed something like the private investment accounts that President Bush has unsuccessfully sought, though most experts agree that establishing such accounts would increase the strain on the system, at least in the short term. On Medicare, the candidates generally point to health reform proposals they argue could bring down the cost of health care nationally, thus reducing cost pressure on Medicare.
Beyond that, specifics are sparse; the conservative Club for Growth, for example, describes Romney's proposals for Social Security as "scarce" and Giuliani's as "conspicuously scant."
You can reach Gordon Trowbridge at (202) 662-8738 or gtrowbridge@detnews.com.