Newspaper article The Christian Science Monitor

Some Economists See Dole Plan as 'Fantasy'

Newspaper article The Christian Science Monitor

Some Economists See Dole Plan as 'Fantasy'

Article excerpt

Economists have had time now to crank up their computers and analyze Republican nominee Bob Dole's economic plan, with its 15 percent cut in income taxes and other tax cuts. In a way, some consider the exercise futile.

"First of all, Bob Dole would have to defeat Bill Clinton, which currently does not look probable," write Peter Canelo and Scott Reed of Dean Witter Reynolds Inc. in New York.

"Is it {the plan} a political fantasy?" asks Joel Prakken, of Macroeconomic Advisers in St. Louis. "I suspect it is. I don't see how it could happen, short of an overwhelming Republican sweep in Congress," plus Dole's victory for the White House job.

But if Dole does win and Congress approves his plan, what happens? There are two key issues:

Will the tax cuts stimulate economic growth and thus boost federal revenue as much as envisaged in the plan?

Yes, says J.D. Foster, chief economist at the conservative Tax Foundation in Washington. He calculates that the Dole plan will add 0.5 percentage points to the Clinton administration's six-year projection of 2.3 percent annual growth, after inflation. Such stepped-up growth appears "entirely reasonable," he says, based on an overall program that includes tax reform, a balanced budget, growth-oriented regulatory reform, and tort reform.

Mr. Foster assumes the tax savings will boost productivity and labor force participation, particularly by second earners in households. Spouses, discouraged from working by a 28 percent personal-income tax rate plus Social Security taxes, will find their marginal tax rate cut by 4.2 percentage points (15 percent of taxes). For some, the balance between choosing child rearing, leisure, or other activities will shift toward going back to work.

Mr. Prakken, contrariwise, doubts the plan will work as well as predicted in Dole's political handouts. The Dole plan estimates enough economic stimulation from the tax cuts to boost tax revenue over the next six years by $147 billion more than the Congressional Budget Office has estimated. This would offset about 27 percent of the $548 billion total tax cut, or some 33 percent of the tax cuts, excluding those that economists figure would have no "supply side" stimulative effect on economic growth. …

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