Squeeze Play
BARNES, FRED
Taxes Squeeze Play by Fred Barnes Economic Consultants Jeffrey Bell and John Mueller broke a taboo when they met in mid-September with the National Commission on Economic Growth and Tax Reform,...
...Mueller is to testify before the full commission on September 26, arguing that the flat tax proposals of House Majority Leader Dick Armey and Senator Richard Lugar of Indiana would produce a middle class tax increase...
...Mueller insists the squeeze stems from the fact the poor pay little in taxes (government benefits aren't taxable) and the rich get tax relief (investment income is taxed at a lower rate...
...The Kemp panel may yet heed their warning...
...There are two more reasons why conservatives refuse to accept the middle class squeeze...
...The last thing Dole wants is a plan that tightens the squeeze on the middle class...
...Also, the nascent Dole-Kemp friendship would shatter...
...They're wrong to blame Reaganomics as the culprit, but right to cite the squeeze as a real phenomenon...
...They never endorse the concept of a middle class squeeze-that's taboo...
...The commission's hon-chos-Jack Kemp, Ed Feulner of the Heritage Foundation, economist Alan Reynolds, staff director Grace Marie Arnett-listened in silence...
...But what's worse, they might embrace it, leaving themselves vulnerable to Democratic attacks...
...And when asked last April about a flat tax, Clinton said studies show Republican proposals "will raise taxes for people with incomes under $200,000 and lower taxes for people over $200,000, like my wife and myself, which would be unfair...
...They regard it as an attack on Reaganomics...
...President Clinton makes the same point...
...Conservatives rarely broach this subject, and when they do, their purpose is invariably to say the decline is exaggerated (soaring fringe benefits aren't counted as income) or merely a misinterpretation of economic statistics...
...If the plan hikes taxes on the middle class, however, Republicans should repudiate it...
...It's inconceivable that Bob Dole would support a tax increase on any individual," says consultant David Smick, who accompanied Bell and Mueller and is a prominent Dole supporter...
...Bell said, "The workers are getting screwed...
...Since middle class Americans have little of this income, they won't benefit...
...The upshot is the middle class pays more...
...Dole expects Kemp to come up with a tax plan he can champion...
...Why don't they...
...Republicans wouldn't be on the verge of putting themselves in this fix if they acknowledged the stagnation in middle class wages...
...Many Republicans, particularly Senate Majority Leader Bob Dole, want the commission to draft a popular GOP tax reform plan for 1996...
...Indeed, Democrats have used the issue of declining income exactly that way...
...Taxes Squeeze Play by Fred Barnes Economic Consultants Jeffrey Bell and John Mueller broke a taboo when they met in mid-September with the National Commission on Economic Growth and Tax Reform, better known as the Kemp Commission...
...True, real income rose slightly during the heyday of Reaganomics (1983-1990), more for entrepreneurs than working families...
...One reason is the middle class squeeze is a staple of Democratic rhetoric...
...Given their aversion to discussing the erosion of workers' pay, they also responded coolly to the suggestion that a flat tax might make a bad situation for the middle class worse...
...Bell and Mueller presented their case on September 14 to Dole's advisers...
...Labor Secretary Robert Reich says over and over: "For a decade and a half, ordinary families have been working harder and getting less...
...One would give working families a cut in their combined income and payroll taxes, but the well-to-do and businesses would pay more by losing their lucrative deduction for depreciation on investment property...
...Even if the commission endorses Armey, Dole isn't likely to...
...Not so with the Armey plan, on which the Kemp Commission appears to look favorably...
...But that's what Bell, who worked in the Nixon, Reagan, and Kemp presidential campaigns, and Mueller, a former economist for Kemp, did...
...Conservatives are in a state of denial about the income of middle class Americans...
...And since the rich and businesses have such income and will benefit, the tax burden will fall more heavily yet on the middle class...
...It's not...
...They raised the issue of the middle class squeeze, the stagnation of average Americans' wages for the last two decades...
...To avert this, Bell and Mueller have proposed two versions of a 19 percent flat tax on all gross income above the poverty line...
...This is important...
...And that makes the proposals "exceedingly unattractive in political terms...
...It's a problem caused by the tax system...
...Conservatives also see the idea of a squeeze on workers' pay as a challenge to capitalism itself...
...A flat tax like Armey's will only make this worse, says Mueller, by making investment income non-taxable...
...But it dropped sharply in the 1970s and is sinking again in the 1990s...
...Bell says Clinton is correct...
...It's plainly declined...
...The other is a worker-friendly variation of Armey, in which the biggest change is to jettison the business deduction on investment property...
...But the middle class will rejoice...
...Corporate lobbyists will besiege the Capitol if Republicans try to toss out cherished deductions...
...Thus, they "would actually worsen the existing disparity" that forces workers, who earn two-thirds of gross national income, to pay four-fifths of all federal taxes, Mueller wrote recently...
Vol. 1 • October 1995 • No. 3
