TIME: Almanac 1995

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<text id=93TT2393> <title> Feb. 01, 1993: First, Let's Soak the Rich </title> <history> TIME--The Weekly Newsmagazine--1993 Feb. 01, 1993 Clinton's First Blunder </history> <article> <source>Time Magazine</source> <hdr> TAXES, Page 36 First, Let's Soak the Rich </hdr> <body> Resisting big new spending cuts, Clinton is finding it easier to trim the deficit through higher levies, especially on the wealthy By DAN GOODGAME/WASHINGTON Calling for a sacrifice may win you points in baseball or religion, but in politics it's a riskier proposition. When Bill Clinton used that word in his Inaugural Address, it marked a victory for the deficit hawks among his supporters. This faction of the President's aides, joined by centrist Democrats in Congress, is urging him to take advantage of the new public willingness to accept what Ross Perot calls "shared sacrifice" to balance the budget and revive economic growth. But as Clinton and his top economic advisers settled into the White House last week and resumed work on the deficit-reduction plan that they have promised to outline by mid-February, they could agree on few cuts in the big spending programs and tax breaks that benefit middle- and upper-income farmers, veterans, real estate investors and other special pleaders, who will not accept sacrifices quietly. The Clinton team approached a consensus on only one point: taxes will have to rise more than the President has publicly admitted. And the sacrificing shall be done mainly by a small and deserving group: the wealthy. Aides to Clinton emphasize that he has not reached a decision on any of these new levies. As press secretary Dee Dee Myers observed of Clinton in a PBS documentary broadcast last week, "He likes to float things out there to see what the reaction is." These trial balloons are sure to draw heavy fire, but some are sure to survive, according to several sources familiar with the deliberations. The new President has not been struck by a sudden confiscatory urge; instead, facing deficit projections about $60 billion a year higher than expected, he is being forced to look harder for budget savings. Clinton now promises that his budget plan will cut $145 billion from the deficit by 1996, even as he "invests" $220 billion over the same period in new spending on roads and railroads, job training, education and tax incentives for business. To narrow that gap: -- He is considering raising the top income-tax rate, now 31%, to 38% for family incomes above $200,000--above the rate of 36% that he proposed during the campaign. The 38% top rate, along with an earlier proposal to impose a 10% surcharge on people earning more than $1 million, would raise about $20 billion a year. Going to 40% would add $5 billion more. -- At present, income above $130,000 is not subject to Medicare payroll taxes; removing that cap would bring in $6 billion. -- Ending the tax exemption on inherited capital gains on stocks, real estate and other property would net about $4 billion. -- Couples with retirement incomes above $32,000 now pay tax on 50% of their Social Security benefits; applying the tax to 85% of benefits for retirees with income over $100,000 would net nearly $2 billion. -- Corporate income taxes have yielded far less than expected since the 1986 tax reform, even allowing for the recent recession, so Clinton is considering squeezing companies for an additional $3 billion to $10 billion. Several of Clinton's top aides want to move away from higher taxes on income and toward a progressive tax on consumption, like the value-added taxes widely used in other countries. But Alice Rivlin, the deputy budget director, told her colleagues that it could take as long as three years to implement a VAT, leaving Clinton with few benefits for all the political flak he would take. A more likely outcome is a limit on the tax deduction that companies get when they provide employees with health insurance worth more than, say, $335 a month for family coverage. This reform would save the Treasury $11 billion a year. And when companies cut back their health-care benefits, says a Clinton aide, employees will be more likely to "blame their bosses instead of Bill Clinton." A similar logic drives Clinton's opposition to a sharp increase in the federal tax on gasoline. "Clinton has never liked the gas tax, since he got beat up in Arkansas over increasing the fee on license plates," says a longtime adviser. "He knows better than to get between Americans and their cars." Instead, Clinton and his aides are leaning toward a broader energy tax, to be levied on producers rather than consumers. A 5% levy on all energy use would raise more than $15 billion a year and would apply equally to a Chicagoan's home-heating oil and the gas in a Montanan's pickup truck. Such a tax would also promote fuel conservation, diminish pollution and traffic congestion, and reduce U.S. dependency on imported oil. A second option, a tax based on the amount of carbon in a particular fuel, would reduce pollution even more but would be opposed by coal interests. Any fuel tax would hit lower- and middle-income taxpayers harder than the wealthy. So would higher federal taxes on tobacco and alcohol, which are favored by many Clinton advisers and would bring in an extra $5 billion a year. (Beer might get a break.) Clinton could offset these inequities by keeping his campaign pledge, now on hold, to cut income or payroll taxes on the middle class. But aides say he has not yet made that decision. Nor has the President decided how to keep what may prove an even tougher promise made by his Budget Director, Leon Panetta, during his Senate confirmation hearings: that Clinton's deficit-reduction plan will include $2 of spending cuts for every $1 of new taxes. Clinton was counting on health-care cost controls, but is now told that his universal health insurance will eat all the savings and cost an extra $30 billion a year through 1998. The sacrifice has scarcely begun. </body> </article> </text>