TIME: Almanac 1993/TIME Almanac 1993.iso/time/110491/1104201.000

Text File | 1992-08-28 | 3.5 KB | 75 lines

                                                                                BUSINESS, Page 64

THE ECONOMY

Is It a Treat or a Trick?


As the political silly season nears, Washington bubbles with talk
of a tax cut to get the U.S. economy rolling


    What Washington politicians were singing last week sounded
like the chorus of a wistful Beach Boys song. Wouldn't it be
nice, they all sang, if we could cut taxes? Wouldn't that make
voters happy in 1992 and lift the economy too? Once the song
started, almost no one wanted to be caught out of tune. Not since
both parties raced to heap tax breaks on their constituents a
decade ago had Washington seen such an outbreak of charitable
zeal. While economists denounced the latest proposals as too
little too late and virtually certain to worsen the federal
deficit, their warnings went largely unheeded.

     Lawmakers hastily crafted programs to appeal to everyone
from the super-rich to the working poor. Texas Democrat Lloyd
Bentsen, who chairs the Senate Finance Committee, stirred the
most talk by proposing a $72.5 billion tax cut aimed squarely
at the middle class. It would grant families a $300 tax credit
for each child under the age of 19 and would permit all
taxpayers to deduct as much as $2,000 a year invested in
Individual Retirement Accounts. Bentsen would pay for the cuts
by reducing defense spending. That would throw open last year's
budget agreement for renegotiation, because the accord forbids
Congress to shift funds from defense to other programs.

     Politicians rushed forward with nearly a dozen rival
plans, including a move by Democratic Senator Daniel Patrick
Moynihan of New York to revive his long-standing proposal to cut
Social Security taxes. Not to be outdone by the Democrats,
Senate Republican Phil Gramm of Texas and House minority whip
Newt Gingrich of Georgia introduced wide-ranging legislation
that repeated the Bush Administration's cherished call for
reduced capital gains taxes. But a skeptical public remained
unimpressed by all the ballyhoo and maneuvering. In a TIME/CNN
poll by the firm Yankelovich Clancy Shulman last week, 77% of
the 500 adults surveyed said they considered discussion of a tax
cut for the middle class an election-year gimmick.

     President Bush watched the stampede with rising concern.
He straddled the fence for most of the week, caught between
conflicting advice from top aides, who on one hand urged the
President to make an effort to jump-start the economy but on the
other cautioned against support for any steps that would
increase the deficit. He finally declared himself in favor of
sticking to last year's budget deal, which would rule out
Bentsen's proposed cuts and all other plans that laid claim to
defense dollars. "I'm not going to be totally opposed to some
of these ideas I hear up there," Bush said, but declared: "I
don't want to reopen the budget agreement because I think the
constraints on spending are helpful."

     The economy may have the last word on how Washington
responds to stubbornly stagnant business conditions. The
Commerce Department said last week that orders for such durable
goods as steel, machinery and aircraft fell 3.2% in September
following a 4.1% decline the previous month, indicating that the
recovery is barely kicking. Unless the economy can right itself
soon, the pressure on politicians to appear to do something to
help their constituents is likely to keep growing.


By John Greenwald. With reporting by Michael Duffy and Hays
Gorey/Washington.