IPI Publication Opinions/Editorial
IPI Issue Brief
Related Publication Title:
The Fiscal Plans of Al Gore and George Bush: A Comparison
Released by Gary Robbins, Aldona Robbins on 11/09/2000
IPI Issue Brief
Related Publication Title:
The Fiscal Plans of Al Gore and George Bush: A Comparison
Released by Gary Robbins, Aldona Robbins on 11/09/2000
Full Text
Press Release (10/31/2000)
Press Release (10/30/2000)
Press Release (02/07/2001)
Press Release (01/25/2001)
Press Release (10/09/2000)
Press Release (10/12/2000)
Media Advisory (10/09/2000)
OpEd (11/09/2000)
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Unfortunately, Both Candidates Could Accelerate The Growth In Entitlements, Especially The Medicare Program
After the three presidential debates, how much do voters really know about the candidates' fiscal policies? How would the fiscal plans of Vice President Al Gore and Gov. George W. Bush alter the course of the economy and federal budget compared with current law?
Taxes
As president, George Bush would cut taxes a lot more than Al Gore-- $1.4 trillion compared with $400 billion over the next 10 years. Rate reduction along with eliminating the estate tax makes up two-thirds of the Bush tax cut. The rest is targeted to special areas like marriage, children, health and long-term care.
As president, Gore's $575 billion in tax cuts would be targeted to such specific activities as buying an energy-efficient car or going to college and phase out as income goes up. Gore also wants to raise over $180 billion through higher taxes on business and tobacco.
To put these numbers in perspective: Under current law, federal taxes are expected to average 20.1 percent of gross domestic product over the next 10 years. Gore would lower that effective tax rate to 19.8 percent and Bush to 19 percent.
Still, taxes under a Gore administration would be higher than the 19.1 percent of the Clinton years, and the tax burden under either Bush or Gore would stay well above the 18.1 percent of the Reagan-Bush years.
Spending
Gore would increase federal spending by $900 billion compared with almost $160 billion for Bush. More than half of Gore's spending and over two-thirds of Bush's would concentrate on health.
The biggest item for both candidates would be a new Medicare prescription drug benefit. Gore wants to tack on prescription drugs to the existing Medicare program and charge a new premium starting at $300 in 2002 and rising to $600 by 2009.
Bush wants comprehensive Medicare reform, which visualizes participants choosing among private plans that would include prescription drug coverage.
Both candidates would subsidize prescription drugs for low-income seniors. Under current law, total federal spending is slated to decline from 18.2 percent of gross domestic product today to 15.6 percent by 2010. Because of new initiatives, both candidates would spend more than current
law--16.9 percent under Gore and 16.4 percent under Bush.
Paying Off the Debt
Federal surpluses are expected to total $4.6 trillion over the next decade, enough to pay off debt in the hands of the public by 2010.
Gore would spend almost one-fifth of the surpluses on programs compared to 3.5 percent for Bush. Bush would use almost one-third for tax cuts, compared with less than 9 percent for Gore.
Either way, higher interest payments would consume roughly 7 percent of the surpluses. That would leave Gore with 65 percent and Bush with 58 percent of the surpluses for debt reduction. Both Gore and Bush would pay
off the debt sometime during fiscal year 2013, three years later than projected under current law.
The Economy
Lower income tax rates and elimination of the death tax in the Bush plan will have a positive effect on the economy.
Increased incentives to work, save and invest could raise the growth rate from 2.7 percent to 2.97 percent by 2010, boosting employment by almost 2 million jobs and the stock of U.S. capital by 6.8 percent above baseline levels. Put another way, every dollar of static revenue loss would generate $1.80 in added output.
Gore's tax cuts are much smaller in size and incentives. By 2010, growth would increase from the baseline 2.7 percent to 2.73 percent,
raising employment by about 200,000 and the capital stock by 0.3 percent more than otherwise. Each dollar of static revenue loss would generate 41 cents in extra output.
The Bottom Line
Both candidates agree that the preponderance of the $4.6 trillion in surpluses should go to paying off the debt. Both would pay off the debt within months of each other but three years later than current law.
How the rest is used could dramatically affect the federal budget and general economy. Bush would cut federal taxes a good deal more than Gore and produce a bigger economic payoff.
Regrettably, the targeted tax cuts of both candidates would further complicate the tax code and take revenue off the table that could be put to better use with broad-based tax reform. Gore would increase federal spending a good deal more than Bush.
Too bad the plans of both candidates could accelerate the growth in entitlements, especially Medicare, exacerbating long-run financial problems.
As for the economy, the Bush tax cuts would provide a bigger boost, which, in the face of rising oil prices, a jittery stock market and weakening euro, may become necessary sooner rather than later.
ALDONA ROBBINS and GARY ROBBINS are senior research fellows at the Institute for Policy Innovation. Their new analysis, "The Fiscal Plans of Al Gore and George Bush: A Comparison" is available at www.ipi.org. Their views are not necessarily those of BridgeNews, whose ventures include the Internet site www.bridge.com.
Nothing contained herein should be construed as an attempt to influence the passage of any legislation before Congress.
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