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REPUBLICAN & DEMOCRATIC TAX PROPOSALS IN 1992.
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Compares Bush's & Clinton's policies, probable effects, aims.... More...
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Paper Abstract:
Compares Bush's & Clinton's policies, probable effects, aims.

Paper Introduction:
Democratic and Republican Tax Policy Proposals This paper will discuss the Republican and Democratic campaign proposals for changes in Federal tax policy. It should be noted that most of these proposals are vague; few details as to specific changes in the tax code have been announced by either candidate. There are really two sets of proposals made by President Bush. The first changes were proposed in January of 1992 but rejected by Congress. Some of these proposals were then incorporated into H.R. 11, a bill originally aimed at aiding the inner cities in the wake of the Los Angeles riots but eventually evolving into a broad tax bill. The second set was proposed during the course of the last four months of the presidential campaign, largely in response to criticism that President Bush

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Thefirst changes were proposed in January of 1992 but rejected by Congress.Some of these proposals were then incorporated into H.R. Clinton's plan is much more attractive to lower and middle-incometaxpayers than is Bush's plan. 11 included a passiveloss deduction for real estate, provisions permitting penalty-free IRAwithdrawals, a first-time home-buyer credit, and a cut in the capital gainstax. Both plans seek tostimulate the economy, with various provisions affecting corporatetaxation. L-2). The last proposal would have altered theAlternative Minimum Tax ("Internal Revenue Code" sec. One would increase the top tax rate from 31% to 36%on the top 2% of individual taxpayers, in particular couples with incomesover $2 , and individuals with incomes over $14 , (Ibid.). There are really two sets of proposals made by President Bush. A comparison of the two plans reveals something of a policydifference between the two candidates. 11 waspassed by both houses of Congress and cleared by the Senate to be sent tothe President on October 8, at the end of the Congressional term (Cloud3132-33). "Clinton Plan Targets Foreign-owned Firms,Wealthiest Taxpayers for Tax Hikes." Daily Tax Report, 23 June 1992, G-8, L-2, & L-1 .Cloud, David S. Of course, this is a variation on his long-held wish torestore the special treatment of capital gains, a provision eliminated inthe 1986 tax reform law. The campaign proposals became especially importantafter the President withdrew support from H.R. He has also made abroad proposal to prevent fraud on unearned income of wealthy taxpayers,although the changes this proposal would entail in the tax code areuncertain ("Daily Tax Report G-8). "Key Distinctions Separate Candidates' Economic Plans." LosAngeles Times, 31 August 1992, A1.Wessel, David and Michael McQueen. Much of his plan would have affected taxes on corporations andpartnerships; certain provisions, however, would have given individuals taxbreaks. The second set wasproposed during the course of the last four months of the presidentialcampaign, largely in response to criticism that President Bush had noconcrete economic plan. These policies are partially credited withspurring the economic boom of the 198 s since they encouraged spending onthe part of those who benefitted from the tax breaks. A direct contrast between the two plans is thetreatment of the Alternative Minimum Tax, a tax designed to make sure thatwealthy individuals pay some tax, no matter how many credits, exclusions,and deductions they can legitimately claim. The relative merits of the two plans depends upon what one considersthe most serious issue which needs addressing. It should be noted that mostof these proposals are vague; few details as to specific changes in the taxcode have been announced by either candidate. The main difference between the two plans is that Clinton's planincreases taxes on the wealthiest individual taxpayers. There are several proposals which wouldprovide some relief for these taxpayers, although the proposals are not asstrong as what had been promised early in the campaign. Some of theproposals were aimed at businesses, tightening the provisions regardingdeductions and credits while encouraging investment in new plants andequipment. President Bush wishes tomodify it so as not to impose it on individuals who claim largedepreciation deductions; Governor Clinton wishes to actually increase thetax. "Bush Proposes Break on Taxes forSmall Firms." Wall Street Journal, 24 September 1992, A18.__________. Additionally,taxpayers would have been able to withdraw money from their IRAs without apenalty if the money was used for first-time home purchases, education, ormedical expenses, or if the taxpayer was unemployed. Another proposal, theoriginal intent of the bill, would have provided tax breaks to taxpayersinvesting in businesses in designated enterprise zones in inner cities.These breaks would have included a 5 % cut in the capital gains tax oninvestments in the zone area held for at least five years (Ibid. An example of this is his proposal to cut thecapital gains tax on long-term capital gains from the sale of shares insmall businesses. Anotherprovision would impose a 1 % tax surcharge on income over $1 million. PresidentBush's plan, on the other hand, pays little attention to reducing thedeficit. The deficit is muchlarger than in 1981, a situation widely attributed to the Reagan policies.Some observers have even attributed the economic growth of the 198 s not tothe Reagan policies so much as to changes in the global economy andincreased spending by the government. The plan contained several other provisions, however, which affectedtaxes on individuals. "History May Judge Reaganomics Very Harshly." Los AngelesTimes, 8 November 1992, D1.__________. In this respect, his plan is similar to that of PresidentReagan in the early 198 s. 11 and vowed to veto it. President Bush's original proposals for H.R. Works CitedBureau of National Affairs. In contrast to President Bush's proposals, which were issued in atvarious times during the campaign, Democratic candidate Bill Clinton issuedhis proposed tax policy in a statement on June 21, 1992. President Bush's plan, on the other hand, seems to be a belatedattempt to stimulate the stagnant economy through tax breaks andincentives. Under the original Bush provisions in H.R. In addition,these wealthy taxpayers are better able to reduce the Federal deficitthrough tax revenue than lower income taxpayers (Ibid. "Senate Sends $27 Billion Bill Straight for a Veto."Congressional Quarterly Weekly Report, 1 October 1992 , 3132-35.Frantz, Douglas. Athird provision would increase the Alternative Minimum Tax. The President'seventual opposition to the bill was based upon other provisions inserted bymembers of Congress, provisions which the President said would have forcedhim to renege on his campaign proposal not to raise taxes. 11, a billoriginally aimed at aiding the inner cities in the wake of the Los Angelesriots but eventually evolving into a broad tax bill. 11, individuals in thereal estate industry would have been able to deduct losses on rentalproperty (passive losses) against their ordinary income. H.R. "Budget Watchers Check Off Reactions to Bush's Tax Plan." Los Angeles Times, 22 August 1992, A14.Risen, James. The policies also encouragedindividuals and corporations to take on large levels of debt, a situationwhich prevented them from adapting to the economic downturn (Risen D1).Under the Bush plan the huge Federal deficit would likely grow even larger,hindering or even preventing any attempts to directly stimulate the economywith direct government spending should the recession worsen. Early in his campaign Clinton had proposed a tax break formiddle-income taxpayers; he was forced to downplay these proposals justbefore the Democratic Convention in July, as the issue of the deficit beganto make headlines (Risen A1). After the Republican Convention in August Bush offered a generalplan, which he said would be "fleshed out" after his reelection (Risen A1). A fourthprovision would expand the Earned Income Tax Credit ("Internal RevenueCode" sec. A fifth provision kept alive theidea of some sort of tax break for the middle-class by giving middle-classtaxpayers a choice between a children's tax credit or a lowered income taxrate. The main reason for these higher taxesis to "pay" for the tax cuts on the middle and lower income taxpayers.These proposals are also a response to the charge that the wealthiesttaxpayers have benefitted the most from the tax changes since 1981 and havenot been shouldering their fair share of the tax burden. Democratic and Republican Tax Policy Proposals This paper will discuss the Republican and Democratic campaignproposals for changes in Federal tax policy. The first proposal would have cut the personal tax rate by 1% pointfor all individual taxpayers (Wessel & McQueen A2). The second proposalwould have cut the capital gains tax in half for profits from the sale ofstock in small businesses ( those with assets or receipts less than $1 million) if the investors held the shares for at least five years; the cutswould have increased with the length of time the shares were held,eventually eliminating the tax if the stock were held for more than tenyears. Of these, only the first two made it into the bill. 3134). These provisions were a cut in personal tax rates across theboard, a cut in the capital gains tax, an increase in the personalexemption for certain persons, and an alteration in the Alternative MinimumTax. Although he may be seeking to reenact the economic boom of the198 s, the overall situation has changed since then. 11 died after when President Bush failed to either sign orveto the bill before its November 5 deadline. President Bush seeks to stimulatethe economy by providing tax incentives to business owners, especiallysmall business owners. "Bush Suggests a 1-Point Drop in Tax Rates." Wall StreetJournal, 11 September 1992, A2.----------------------- 6 The Clinton plan is also aimed at forcing wealthy individuals toshoulder a greater tax burden, helping to reduce the deficit. Finally, in one of the more unusual proposals, President Bushadvocated a "tax checkoff" where taxpayers could allocate up to 1 % oftheir taxes to reduce the Federal deficit (Frantz A14). H.R. The third provision would have increased the personal exemption forfamilies with children. President Bush'splan, however, does not address the Federal deficit, except in the sensethat a healthier economy should eventually increase tax revenues. 55), ensuring thatsmall business owners are not subject to it simply because they have largedeductions for depreciation or oil and gas drilling costs (Wessel & McQueenA18). A final provision would give a 5 % tax exclusion to those who takerisks by making long-term investments in new businesses ("Bureau ofNational ..." G-8,L-2, & L-1 ). In contrast, thePresident's proposal to cut rates across the board would apply to allindividual taxpayers; in fact, in straight dollar terms, this proposalwould help the wealthy more than others (since 1% of $1 , is largerthan 1% of $15, ) . 32) to make up the difference between a family's earnings andthe poverty level; this credit would also be extended for part-time workersto provide a greater incentive to work.

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