PALO ALTO, Calif. — Which special interest has the greatest
influence on GOP presidential nod George W. Bush? Is it big tobacco? The
NRA? The Christian Coalition?
When it comes to cobbling together Bush’s agenda, a West Coast think
tank may have the edge. A raft of Hoover Institution fellows are
advising the Texas governor.
Hoover is a stronghold of Reagan conservatism, carved out here amid
the pines and palm trees of one of the most liberal campuses in America
— Stanford University, home to first daughter Chelsea Clinton when
she’s not campaigning with her parents. Quipped one senior Hoover
fellow, “You’d be hard-pressed to find a registered Republican on
campus.”
Those helping to formulate foreign policy for the Bush campaign are
Condoleezza “Condi” Rice and George P. Shultz. Economic advisers include
Michael J. Boskin, Martin Anderson and John F. Cogan, whose favorite
hobbyhorse is supply-side tax cuts.
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John F. Cogan, tax adviser to Republican presidential candidate
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Cogan is a former coach who went on to earn a Ph.D. in economics and
serve in the Reagan administration as the associate director of the
Office of Management and Budget from 1983 to 1985, working under
then-director David Stockman. He came back to the White House for a
short stint in 1988-89 to serve as President Bush’s deputy OMB director,
helping boss Dick Darman hammer out Bush’s first budget.
He’s now advising the Bush campaign on its broad-based tax cut, a
plan he helped craft with lead tax adviser and former Federal Reserve
governor Lawrence Lindsey. Cogan is also consulting with Bush on Social
Security reform and budget issues.
WorldNetDaily recently caught up with the energetic Cogan at his
Hoover office, which is adorned with photos and certificates from his
Reagan White House days, to ask him to explain in more detail the $1.3
trillion Bush tax-cut proposal, and compare it to the tax benefits
offered by Vice President Al Gore.
WorldNetDaily: Vice President Gore is arguing that 80 percent
of the Bush tax cut goes to the richest 20 percent — and much of it to
the “wealthiest 1 percent” — and not to “working families,” unlike his
plan. That’s the mantra, anyway. Your response?
Cogan: Gov. Bush’s concept of fairness is fundamentally
different than Gore’s. He thinks everyone who pays taxes should get a
tax cut. And as you can see from this chart, the largest share of tax
reductions under the Bush plan goes to individuals who have the lowest
income.
Q: Explain how
the curve on that chart works.
A: If you’re a prototypical family of four and your income is below $35,000, you will have your federal-income taxes reduced to zero. If your income’s around $50,000, which is about the median family income in the United States, your taxes will be reduced by about 50 percent. And if your income is about $75,000, your taxes will be reduced by about 25 percent.
Q: Percentage-wise, that’s true. But the Gore camp points out that the rich walk away with the most dollars.
A: Under the Bush plan, upper-income individuals will end up paying a larger share of the total tax bill, so I think most people will say that’s fair.
Q: The current IRS code has five income brackets. Gov. Bush collapses it to four. How does he do that, and does his plan really simplify the code?
A: Yes, it does simplify the code. We currently have a 15 percent bracket, a 28 percent bracket and a 31 percent bracket that apply to middle- and upper-middle income individuals. And then we have a 36 percent bracket and a 39.6 percent bracket — the new “Clinton bracket.”
What the governor has proposed is to take a portion of the income earned in that lowest bracket and take it down to 10 percent. So the first $10,000 of income an individual earns will be taxed at 10 percent, rather than 15 percent. The middle- and upper-middle income brackets of 28 percent and 31 percent will be reduced to 25 percent, and thereby one bracket will be eliminated. Then the 36 percent and 39.6 percent brackets will be reduced to 33 percent. So you end up with brackets of 10, 15, 25 and 33.
Q: So it basically repeals the Clinton tax hike?
A: Right. It’s the governor’s belief that no one should pay more than a third of their income in taxes.
Q: How about getting it down to that 7 percent level they promised it would stay when they first created the federal income tax in 1913?
A: (Laughter). Yeah, now we have a payroll tax that’s higher than 7 percent.
Q: Bush actually cuts marginal tax rates, in addition to sweetening tax credits. Gore, on the other hand, doesn’t cut rates. How would you describe his plan?
A: The best way to describe his tax plan is, it’s really a set of spending programs that are administered by the IRS.
Q: How so?
A: The government payments that one would get under the vast majority of his tax proposals are independent of one’s tax liability. And they are conditioned on the individual engaging in a government-approved manner.
If you send your child to a government-approved day-care center, you can receive a government check regardless of whether or not you owe any taxes. That’s not a tax cut. That’s a program for spending that’s administered by the IRS.
Q: Give me another example.
A: Gore’s long-term care credit. If you have a child who you can demonstrate to the secretary of the Treasury is unable to perform two activities of daily living over a six-month period, you can get a check from the United States Treasury, regardless of whether or not you have any tax liability at all. That’s a government grant program, not a tax program.
Q: I notice the Gore tax credits would all come with income caps that limit who could qualify for them.
A: Yeah, they all have them. You know how many phase-outs there are in the federal tax code right now? Over 20.
Q: Nothing to cheer about come April 15 if you’re a dual-income household that itemizes.
A: My wife describes it probably the best way. You know, the typical Christmas card from Bill Clinton and Al Gore reads as follows: “Merry Christmas, if your income is below $25,000. If your income is between $25,000 and $50,000, have a good day. If your income’s over $50,000, Bah, hum-bug!”
Q: Could these tax credits, with all their phase-outs and social gerrymandering, be part of the reason voters aren’t buying into tax cuts? I mean, maybe people are just plain skeptical that they can even benefit from them.
A: I think you’ve hit on something. These targeted tax cuts end up being limited to a very small subset of people.
We did a back-of-the-envelope calculation of the number of people who would not benefit from Al Gore’s tax cuts — and again, put those tax “cuts” in quotes — and it’s upwards of 50 million people who would not benefit.
Q: How many is that out of all taxpayers?
A: More than half. Gore calls it a “middle-class” tax cut, but you have to jump through all these difficult hoops to qualify.
Q: Back to your plan, why did you decide not to cut the capital gains tax, when half of all U.S. households are in the stock market now?
A: Good question. We didn’t decide this. The governor asked us to identify the worst parts of the tax code, and the capital gains tax fell just under the cut-off line.
Even though the advisers believed there would be little, if any, revenue loss from a cut in the cap-gains tax rate, official Washington believes it would lose revenue. And we decided early on to try to live within the official budget scorekeeping that the press lives by and Congress lives by.
Q: But you do get rid of the estate tax.
A: Yes. I describe the taxes on capital gains and estates as taxes on hope. People are hoping to build a nest egg for the future, but taxes get in the way.
Q: How confident are you that, should Bush win and Republicans hold onto the House and the Ways and Means tax-writing body, that this tax plan will come out looking the same once it goes through the Washington sausage factory?
A: I’m confident at least the basic parts of the plan will go through. For instance, the estate tax will be repealed. It’s already passed Congress, but President Clinton vetoed it. Rest assured, a Republican Congress will reintroduce the bill and a President Bush will sign it. Same for the elimination of the marriage tax penalty. President Clinton vetoed it. They’ll pass it again next year and President Bush will sign it.
Q: What’s his version of eliminating the marriage penalty?
A: It’s a very simple idea that was enacted in 1981 under the Economic Recovery Tax Act and was repealed in 1986, in that alleged tax-reform bill. What it would do is grant a 10-percent reduction in taxes for the lower earner in a two-earner family.
Q: How has the Democrat in this race been able to steal the mantle of fiscal responsibility?
A: The Gore claim is that his plan would put money to debt reduction. But when you add up the cost of all his promises, it’s clear it actually doesn’t. The Senate Budget Committee issued a report that shows he overspends the available surplus by about $900 billion over five years, and that forces him to dip into Social Security or raise taxes. The National Taxpayers Union came up with a slightly higher number.
Q: OK, now how’s the Bush plan compete on debt-reduction?
A: One unappreciated fact of the Bush plan is — even if you take the tax reduction into account, and if you were to set aside money for personal accounts for Social Security — you would in 10 years cut the national debt in half. That would represent the fastest reduction in the national debt in more than a century.
Q: What are your assumptions for economic growth? Are you counting on more of the strong gains we’ve had?
A: No, it’s much lower. It has the economy growing at a rate of about 10 percent slower than the growth over most of the last half century. So it’s not a rosy forecast at all.
Q: What are we talking about, 2.5 percent?
A: No, 2.7 percent.
Q: Back to Gore’s new spending programs. Wouldn’t they be locked into the automatic, mandatory spending part of the budget, along with Social Security and Medicare, for years and years to come?
A: That spending increase is very, very dangerous. Gore’s promising universal health care, universal prescription-drug benefits for seniors, universal savings accounts, financed with taxpayer money, and universal pre-school education, financed with federal dollars.
If the surplus is used to create and finance these entitlements they will continue to be financed after the surplus disappears. And the same younger generation who will have to foot the bill for Social Security and Medicare, as the baby boomers retire, will be asked to foot the bill for these entitlements.
It’s the height of irresponsibility to take a temporary surplus to impose a higher tax burden on a younger generation of workers. It makes absolutely no sense. And yet at a base level, that’s what Al Gore is proposing.
Q: Why isn’t the Bush campaign distilling this down for young voters and warning them what they’re in for?
A: That’s your job.
Q: Yeah, it’s the media’s job in part, but I haven’t seen any TV ads from Bush on this. And I haven’t heard him raise it in the debates.
A: It’s amazing.
Q: Have you priced out the cost of Gore’s individual retirement-account plan, which uses tax funds to match personal savings?
A: If it’s taken up at the same rate that workers take up employer-provided pension plans — about 75 percent participate in those private plans — it will be about $120 billion per year. That would be larger than a prescription drug benefit.
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