| The Harvard Salient | November 4, 1996 |
| Cover Story | |
ith the election nearing, Bob Dole's prospects look bleak. His economic package, which was to be the centerpiece of his campaign, has failed to capture widespread support among voters. Americans generally are happy with the performance of the economy under Bill Clinton and are not prepared for the sort of drastic change Dole is proposing. This time the public is right.
A poll in the October 5 Economist reveals that a large majority of academic
economists agree that a second Clinton term would be better for the economy
than a Dole presidency. Most economists are dubious that the Republican
candidate's proposed tax cuts would significantly boost economic growth.
Dole's plan assumes that 27% of government revenues lost because of his
$500 billion tax cuts will be recovered as faster growth causes people to
pay more in taxes. Some supporters of the plan, notably Nobel laureate Gary
Becker of the University of Chicago, believe that faster growth could actually
lead to a much larger feedback, but over three-quarters of those p
olled by the Economist believe that the 27% estimate is unrealistically
optimistic.
In theory, cutting income taxes and capital gains taxes could encourage people to work and save more, sparking new growth by increasing the size of the nation's labor force and capital stock. But this will not necessarily happen. Although a lower capital gains tax rate means that each dollar saved today allows for more consumption in the future, it also means that individuals need to save less to pay for future obligations such as college tuition and retirement. Economists generally believe that the net result of these effects is small or negligible. For similar reasons, lower income tax rates do little to promote work.
Dole's tax cuts, therefore, would greatly decrease government revenues. Harvard Professor Robert Barro argues that this is an effective way of disciplining Congress to restrain spending, but given that Dole has promised not to pare Social Security or defense expenditures, the odds of $500 billion in spending cuts over the next six years are slim. With decreased revenues only partly offset by spending cuts, budget deficits would rise under Dole's plan. In the Economist poll, balancing the budget receives significantly more support than cutting taxes as a means of promoting growth. Reducing government borrowing would increase the supply of funds available for investment in the private sector, encouraging capital accumulation and thus expanding the economy. In this light, Dole's plan is hardly pro-growth. Clinton's proposed tax credits for higher education and other minor cuts would exacerbate the deficit somewhat, but are still more responsible than the Republican candidate's larger cuts.
While Dole's tax cuts are a poor attempt to promote growth, his proposed education reform is much more appealing. Refusing to genuflect before teachers' unions (as the President has done), Dole supports giving low-income children vouchers to attend private schools. Respondents to the Economist poll view education reform as more important to promoting growth than either tax cuts or balancing the budget. However, there is still a raging debate over how successful voucher experiments have been in improving test scores, and in any case, the growth effects of education reform would only show up in the long run after students benefiting from the reform entered the labor market.
linton has looted a savings and loan, cheated
on his wife, waffled on foreign policy, and repeatedly lied to the American
people. He has no credibility, and no one should trust his promises to maintain
fiscal austerity. Republicans must maintain control of Congress to ensure
that the President does not continue the runaway expansion of government
that has plagued America since the 1930s. On the other hand, America's next
President needs to check irresponsible attempts to slash taxes. A Clinton
presidency with a Republican Congress would not be a disaster.