Have We Got A Tax Cut For You!

By Amanda Ripley

Time was, selling a tax cut to Americans was about as hard as selling lotto tickets on the day of a $50 million jackpot. Everybody wanted one, no matter how loudly the experts warned against it. Just the phrase "tax cut" had a pleasant, numbing effect on otherwise disgruntled voters.

Which may help explain why George W. Bush looked a bit mystified last week as he struggled to interest voters in one of the biggest tax-cut proposals in recent history. Taunted by Al Gore's accusations that his plan favors the rich and endangers America's prosperity, Bush and his aides abandoned their Theme of the Week--education--and spent their time rebutting Gore and explaining (and then explaining again) Bush's plan. This marked the campaign's first serious message derailment since last February, when Bush visited Bob Jones University while slugging it out with John McCain in the South Carolina primary. After a less than lucid detour into budget baselines, tax cuts and available surpluses during a stump speech in Des Moines, Iowa, on Monday, Bush brought the issue up again, unprompted, on his campaign plane the next day. "I've got to do a better job of making it clear," he said, launching into another muddled description of his plan that left reporters running to his staff for even more explanation. By Thursday, Bush was parading working families before the cameras to demonstrate how his tax cut would change their lives.

For Bush, it was a bad week to be having a bad week. With the national polls giving the Vice President a 10-point postconvention bounce and even a slight lead over the Texas Governor, Bush needed to seize the agenda, not cede it to Gore. And though Gore could lose his groove as quickly as he found it, statewide polls indicate his advantage has grown in California and New Jersey. He is running ahead of Bush in Michigan--a crucial battleground state--and, for the first time, in Minnesota, which is normally a state Democrats can count on in a presidential election but which had been leaning toward Bush.

Once Bush found himself caught in the kind of policy dogfight Gore lives for--the type of exchange Bush dearly wants to avoid--he had no choice but to shoot back. And so Bush began exchanging fusillades with Gore, each claiming his plan would do more for middle-class people than the other guy's would, and each charging that the other would squander the nation's projected $4.6 trillion budget surplus (see chart). Gore asserted that his tax plan, which could cost up to $620 billion over 10 years, was more prudent and fair than Bush's, which would run $1.6 trillion over nine years. The Bush camp countered that Gore's plan would give no tax relief whatever to millions of Americans and that Gore's other spending proposals would feed the surplus to Washington bureaucrats, whereas Bush wants to "give it back to the people."

Before sorting through these competing claims, it's worth noting that both men are playing with funny money. Nobody knows for sure if the gaudy surplus projections will materialize. And there's legitimate debate about the usefulness of the Congressional Budget Office's fiscal predictions. "Most of the CBO's estimates are exaggerated," says fiscal hawk Robert Reischauer, a former CBO director who is now head of the Urban Institute. "The surplus is uncertain."

Half the surplus will be needed for Social Security, and both candidates promise that money is off limits. And the projected $2.2 trillion that remains may turn out to be far less. For one thing, the CBO estimates do not account for the fact that many popular tax breaks now scheduled to expire will almost certainly be renewed. The projections also assume that discretionary spending, such as the defense and education budgets, will grow no faster than inflation. Judging from recent history, Congress is unlikely to show that kind of restraint. "At best, we have a small surplus, nothing like the numbers that are being talked about," says Henry Aaron, a senior fellow at the Brookings Institution. In other words, Bush and Gore are arguing about how to spend $2 trillion that may not exist.

But let's suspend disbelief for a moment. Assuming the surplus does come through, what would the tax-cut plans really do for people? Bush says under his plan, a hard-working family earning $60,000 would be spared an additional $2,050 in taxes; under Gore's, he says, they would save nothing. But Gore points to an eerily similar-looking family and says just the opposite. So who's lying?

Neither is. Whether you benefit from each plan depends on the size of your income, how you choose to spend it and how many family members you're supporting. Generally speaking, you can believe the hype about the two plans. Bush's tax cut is almost three times as costly as Gore's and heaps most of its benefits onto wealthy Americans. Bush offers a couple of middle-class goodies--doubling the existing $500-per-child tax credit and reducing the marriage penalty--but since the thrust of his plan is an across-the-board cut, the wealthy folks who pay the bulk of the taxes would enjoy the greatest gains (the top tax bracket would drop from 39.6% to 33%). Bush would also repeal the estate tax, which in addition to providing needed relief to family farmers and small-business owners would deliver a windfall to the very rich. Result: a small number of affluent people would get almost half of the benefit from Bush's plan.

Gore's proposal would have a narrower impact, and is harder to understand, but count on this: those it would affect are solidly low- and middle-income people. Essentially, Gore would reward them with tax credits and refunds for government-approved good behavior: sending children to college, caring for an elderly relative or setting up certain kinds of savings accounts. It's social engineering via the tax code--something the Clinton Administration has been doing for years, and the sort of federal meddling that drives conservatives and libertarians crazy. It's a long way from the Bush approach of just giving people straight cash and trusting them to do with it as they please. (He offers a few tax credits, but they aren't central to his plan.) As such, the argument between the candidates over tax cuts reflects a fundamental difference in how Republicans and Democrats view the world. "Gore is focused on achieving social objectives, as opposed to tax relief," says Reischauer. "The goal of Bush's plan is tax relief, pure and simple."

There's no question that Bush's tax cuts would be easier for families to claim: everybody's basic rate would be 3% to 7% lower, so less money would come out of each paycheck. It's that simple. But Bush does nothing for the millions of poorer people who do not pay taxes because their incomes are so low. Under current tax law, a family of four doesn't owe taxes until it earns $24,900. Bush's plan doesn't try to help them make ends meet.

People who are climbing beyond the lower rungs of the economic ladder, however, would benefit from Bush's plan. It is designed to ease the transition for families moving just past the $25,000 threshold and into the realm of the taxed. Bush would also give vouchers to the parents of low-income students to help pay for private school.

If Bush's plan helps every taxpayer, especially the rich, Gore's is targeted at people with complicated middle-class lives. The jackpot winner under Gore would be a family making, say, $35,000 a year that has a child in day care (a tax credit of up to $2,160), another in college (a credit of up to $2,800), a sick mother in a nursing home (a $3,000 credit) and a retirement-savings plan (a federal match of up to $2,000). Gore would also expand the earned-income tax credit, a subsidy for people earning too little to be taxed, and eliminate the marriage-tax penalty for some couples. For the most part, nobody earning more than $100,000 a year would see relief from his proposals.

"These are tax cuts that, if you do exactly what Al Gore says--if you not only spend your money the way he wants but you finance that spending the way he wants--he'll give you some of your money back," says Larry Lindsey, the former Federal Reserve governor who designed the Bush proposal. Quips Bush spokesman Ari Fleischer: "Al Gore's tax cut is a tax cut for the rich. All the lawyers and the accountants who will have to fill out all those complicated forms will benefit the most."

To streamline and exploit the issue during his Democratic Convention speech, Gore tried breaking the tax cuts into the kind of currency all Americans can understand: diet soda. He warned that Bush's costly plan would deliver little to most Americans. The "average family," he said, would wind up with only enough additional money to buy an extra Diet Coke a week.

But Gore misspoke, as Bush's people were quick to point out. He meant to say that each family could buy an extra Diet Coke per day. And even that was slightly off, according to the group that crunched the numbers Gore used, the nonprofit Citizens for Tax Justice. The Diet Coke-a-day number actually applies to the bottom 60% of U.S. taxpayers. But many of those taxpayers don't pay any taxes at all, which skews the numbers in Gore's favor.

The real average family, the middle 20% of taxpayers making between $24,000 and $39,300, would do better than Gore suggested. They would be able to use Bush's tax cut to treat themselves to two cans of Diet Coke a day. Refreshing, perhaps, but not life changing.

Maybe that's why, ever since Bush introduced his plan late last year, public reaction has been medium to cool. Poll after poll has shown that a large tax cut is not high on Americans' lists of priorities. Bush's response to the public's reluctance has not been to back away from his idea; instead he just keeps reiterating its benefits and feasibility. "Maybe I didn't explain what I was trying to explain very well," he said in New Orleans on Thursday, before trotting out a middle-class family that would profit from his plan. "Let me start over." It is an axiom of politics that the side in trouble always uses as its first excuse that it has got a communication problem, not a substance problem. So Bush figures that if he could just explain his tax cut better, the voting public would like it more.

If the political effectiveness of Bush's plan isn't obvious, why does he argue so strenuously for it? In part because his conservative philosophy dictates that leftover federal money should go back to the taxpayers who earned it. And in part because his political strategy last fall ratcheted up the size of the plan. Bush is stuck with a decision he made to improve his profile during the primaries. At that time, his advisers believed their most serious challenge would come from Steve ("Flat Tax") Forbes. They were worried that Forbes would paint Bush as soft on taxes, like his father. To counter that, Bush proposed a tax cut massive enough to impress fiscal conservatives, but one that also included a pro-working family element. Result: a $1.6 trillion promise. The irony: Forbes never caught fire. Bush found himself saddled with a jumbo tax cut against an opponent--McCain--who argued for being fiscally prudent and paying down debt. Bush went on to win the nomination, of course, but he's still lugging around his tax-cut plan. And McCain's criticism stuck.

Gore had a similar reason for touting what is by any measure a serious tax cut: he needed to react to Bush. That political reality is apparent to voters, and may be one reason many people aren't tuning into this debate. "He's got to cave in and respond to all of Bush's tax-cut talk," says Howard Richards, 68, a retired real estate broker who turned up last week at a Gore tax event in Florida. Another reason is that Gore knows Democrats argue against tax cuts at their peril. Gore's side "spent 20 years getting hammered about the head by Republicans for being the party of tax-and-spend," says Aaron of the Brookings Institution. "They're not going to let that happen to them again."

Gore has not abandoned all his Democratic tendencies. He makes up for his smaller tax cut with gigantic spending proposals like a proposed increase in child health-care coverage and a prescription-drug benefit under Medicare. Ultimately, Gore would spend about as much of the surplus as Bush. The only difference would be where the money goes. Once either set of proposals was in place, it would be no easier to scale back Gore's prescription-drug entitlement than to reverse Bush's tax cut. Says Reischauer: "Why should today's policymakers dissipate tomorrow's possible surpluses?"

Both candidates have promised to keep talking tax cuts right into November. After that, reality will set in, no matter who wins. No President can wave a wand and change the tax code. As Representative Ray LaHood, the Illinois Republican, noted after introducing Bush at a rally in Peoria last week, "Congress will have some say about it." Whether or not Republicans retain their majority, it's unlikely that a sharply divided House and Senate would pass either plan in its current form. But don't tell Bush and Gore that; they're having too much fun jumping hip deep into piles of make-believe money.

--Reported by James Carney, with Bush, Viveca Novak/Washington and Tim Padgett/Tamarac, Fla.

TIME.com For daily campaign coverage and E-Mail from the Trail updates, go to time.com/campaign2000

With reporting by James Carney, with Bush, Viveca Novak/Washington and Tim Padgett/Tamarac, Fla.