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Surplus Use Sets Apart Bush, McCain

January 12, 2000

WASHINGTON (AP) _ A major difference between the tax relief plans offered by George W. Bush and John McCain is the way they treat projected budget surpluses: Bush would send as much as possible back to taxpayers, while McCain wants to reserve billions of dollars for Social Security and Medicare.

McCain also differs from Bush by targeting more than four dozen corporate tax breaks for elimination to help pay for his plan. They range from credits for ethanol fuel production to tax-exempt bonds for sports stadiums.

The split between the two leading Republican presidential candidates follows the debate last year between GOP congressional leaders who sought huge tax cuts and Democrats, led by President Clinton, who argued that solvency for the two big retirement programs was more important.

In a speech Tuesday in Concord, N.H., McCain contended that his proposal to cut taxes by $237 billion over five years while setting aside $729 billion in surplus dollars for Social Security _ as well as money for Medicare _ was the right way to prepare for the aging baby boom retirement.

``Others suggest that we should use every penny for tax cuts, forgetting we have promises to keep and a fleeting opportunity to keep our word without imperiling the economic future of our children and generations to come,″ the Arizona senator said.

Texas Gov. Bush and his campaign aides insisted anew Tuesday that the surplus would be more than large enough to accommodate his larger tax cut of $483 billion over five years and provide unspecified help to Social Security and Medicare. Indeed, some congressional analysts now say the combined budget surplus may be $800 billion higher than the $3 trillion over 10 years previously estimated.

Bush, noting that McCain’s plan would not lower the lowest rate as his own would, said: ``I think it’s a mistake.″

``I think it’s important to cut all rates to give everybody a tax break,″ he said.

McCain’s also was criticized by Republican presidential rival Steve Forbes, who said the Arizona senator’s plan was similar to Bush’s and that both men were ``missing the point.″

``They both offer a mere modicum of tax relief while cluttering up an already incomprehensible tax code,″ Forbes said in a statement. ``No amount of tinkering will substitute for bold, innovative and total tax reform.″

A top Bush economic adviser, former Federal Reserve Governor Lawrence Lindsey, said Bush wants to be as flexible as possible in fixing those mammoth programs.

``If you start to rule certain things out, the chance at being really successful at solving the Social Security problem goes down,″ Lindsey said.

Iris Lav, deputy director of the liberal Center on Budget Policy and Priorities, said both plans envision more in tax cuts than is wise unless a firm guarantee is in place for Social Security and Medicare.

``Unless there is some specific agreement, you can’t start spending the money either on new programs or tax cuts,″ Lav said.

For some Republican activists, McCain’s stance on the surplus is too close to Clinton’s and too far from their goal of limiting government growth by cutting taxes and spending.

McCain aides, however, say that $729 billion would be ``locked away″ where Congress could not get at it _ an idea similar to a measure passed last year by the GOP-led House but never enacted by the Senate.

To pay for a large chunk of his tax package, McCain proposes eliminating more than 50 breaks in the tax code _ raising what the campaign estimates as $150 billion. Democrat Bill Bradley has also targeted tax breaks, but to a much lesser extent.

McCain’s hit list includes credits for ethanol, tax-exempt bonds for shopping centers and sports stadiums, exemptions for investment income of trade associations, a deduction for business entertainment costs, even a tax credit for electricity produced from poultry waste that was recently passed by Congress with McCain’s grudging support.

``Every tax dollar now wasted on special breaks for oil companies, ethanol giants, insurance companies and the multitude of other special interests with their armies of lobbyists, is now at risk,″ he said.

Lindsey said that ``there may be some merit″ in some of McCain’s proposals, but added that Bush is concerned that elimination of some loopholes would ``have unanticipated consequences. It’s important to see the specifics, to see the dollar amounts.″

Another major difference between Bush and McCain is in income taxes, although both agree on doubling the current $500-a-child tax credit that benefits millions of families.

Bush wants to gradually reduce all income tax rates and simplify from five brackets to four, with the top rate cut from 39.6 percent to 33 percent by 2006. McCain, on the other hand, would make more people eligible for the 15 percent bottom bracket by raising the top eligible income from $43,050 to $70,000 in taxable income.

Lindsey, however, said that 71 percent of taxpayers are already in the 15 percent bracket, and Lav of the Center on Budget and Policy Priorities agreed it would most benefit the quarter of Americans with the highest incomes.

``It only helps people who have a portion of their incomes above 15 percent,″ Lav said.

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