ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Tuesday, August 6, 1996 TAG: 9608060091
SECTION: NATIONAL/INTERNATIONAL PAGE: A-1 EDITION: METRO
DATELINE: NEW YORK
SOURCE: PETER G. GOSSELIN THE BOSTON GLOBE
NOTE: Above
Bob Dole says his new economic plan will carry America ``to the threshold of a breathtaking future.'' But to many economists, it looks like ``Back to the Future.''
For all Dole's claims about the innovativeness of his proposal, analysts said that it relies on two tried and troubled ideas - spending cuts like those balked at by the public last year, and an economic payoff largely missing from the nation's last experiment with substantial tax cuts under Ronald Reagan.
Dole unveiled his plan Monday during a speech that aides characterized as a go-for-broke bid to reinvigorate his flagging presidential campaign. It includes a promise to slash taxes by $548 billion over six years, including a 15 percent reduction in income tax rates over three years.
The presumed Republican presidential nominee also proposed to cut the current maximum capital gains tax rate from 28 percent to 14 percent, create a $500 per-child tax credit, expand Individual Retirement Accounts and repeal a tax increase on Social Security benefits for the wealthy.
``It's time to unshackle the U.S. economy from the big government ball and chain, and go for the gold,'' he told a sympathetic business audience in Chicago.
But even some key players from the Reagan years seemed less than enthralled with the GOP candidate's proposals.
``Tax cuts alone can't get you a large and sustained increase in economic growth,'' conceded Murray Weidenbaum, Reagan's first chairman of the Council of Economic Advisers and now an economist at Washington University in St. Louis. ``This is not something I'm beating the drums for.''
``There's a need for some humility,' added William Niskanen, another Reagan administration economist who now heads the libertarian Cato Institute in Washington.
``We should recognize there is no single policy that's going to bring back the increasing productivity and rising real wages of the 1960s,'' Niskanen said.
For the rest, a wide array of analysts criticized the proposal as, at best, of only modest economic significance and, at worst, a recipe for political disaster.
``It's in the right direction, but the wind isn't exactly whistling through the sails here,'' said David Wyss, research director for DRI/McGraw-Hill in Lexington, Mass.
Wyss said the Lexington consulting firm has estimated that a tax cut similar to Dole's - 15-percent across-the-board reduction offset by spending cuts - would add about $70 billion a year to the nation's income. But he said that would only occur after 10 years and would amount to an increase in growth of less than one tenth of a percentage point.
Dole and his economic advisers appeared to be anticipating such lines of attack on his proposal Monday. The GOP presidential candidate raised one of the toughest criticisms himself. In the prepared text of his speech, he asked ``Isn't this program a return to the quote `failed' policies of the 80s?''
Predictably, he answered ``no,'' but analysts said that his reasoning masked as much as it revealed.
Dole went out of his way Monday to wrap himself in the former president's mantle, claiming that during Reagan's two terms ``we vanquished inflation, brought interest rates down from double digits and averaged nearly 4 percent growth in the longest peacetime expansion in history.''
Dole traced that performance to Reagan's tax cuts, which he said ``helped restore America's economic greatness.''
The problem, according to analysts, is that the way the Reagan cuts actually worked bore little resemblance either to what their authors intended or what Dole implied similar policies would do today.
While the cuts no doubt helped spark a boom, economists generally agree that they did not do so by fundamentally changing the way the economy works, but simply by speeding it up for a while.
Promises that key measures of economic health would improve, like savings and productivity or output per hour, never panned out. Reagan defenders assert that they would have had the cuts not been tinkered with, but analysts generally dismiss such claims. ``It's always easy to say green-eyed Martians came down and changed the growth numbers, but there's no evidence to support it,'' said Wyss.
Even if the cuts worked as advertised during the Reagan years, analysts said the economy is in such different shape now than it was then that similar reductions would be unlikely to produce similar effects.
Chief among the differences: when Reagan entered office, unemployment was high, which meant the country had plenty of room to grow. Now it is close to fully employed, which makes many analysts worry that a tax cut would drive up wages and prices without producing any new growth.
Dole sought to reassure voters Monday that his tax cut would not follow the mold of the Reagan years by raising the deficit. He insisted that entire amount would be ``paid for'' either by extra tax revenues from faster growth or by spending reductions. But in making such a pledge, Dole firmly aligned himself with a second tried and troubled GOP cause, balancing the budget through cuts.
Dole advisers struggled Monday to put distance between their candidate's cuts and the monumental package of reductions sought since last year by the Republican Congress. Donald Rumsfeld, a senior Dole policy adviser, told CBS News Monday that ``anyone who says this is going to involve any cuts in Medicare, Medicaid or Social Security is not telling the truth.''
But a wide variety of budget specialists said the Dole proposal would require just that, and billions of dollars more as well. ``It would require very deep cuts in programs the American public balked at cutting last year when the cuts were much smaller,'' said Robert Resichauser, a former Congressional Budget Office director and budget expert at the Brookings Institution.
According to Robert Resichauser, a former Congressional Budget Office director and budget expert at the Brookings Institution, ``It would lead to such a sharp reduction in the activities of the government, the public wouldn't stand for it.''
LENGTH: Long : 114 lines ILLUSTRATION: PHOTO: AP. GOP presidential hopeful Bob Dole, joined byby CNBIllinois Gov. Jim Edgar, waves to supporters prior to delivering his
economic address Monday in Chicago. color. KEYWORDS: POLITICS PRESIDENT