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Manhattan Institute

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What Bush Should Have Said About Tax Cuts


What Bush Should Have Said About Tax Cuts

E. J. McMahon, E. J. McMahon October 19, 2000

The question posed by Lisa Key near the end of Tuesday night's presidential campaign debate amounted to a high, hard one for Al Gore and a slow, hanging curve ball right down the middle of the plate for George W. Bush. Mr. Gore twisted and ducked; Mr. Bush checked his swing and fouled it into the dirt.

"How will your tax proposals affect me as a middle-class, 34-year-old single person with no dependents?" Ms. Key asked.

The question was directed first at Mr. Gore-who proceeded to misrepresent his own Retirement Savings Plus (RSP) plan. Here is what he told Ms. Key:

Competing Tax Cuts

For a single person, no dependents



















Source: Manhattan Institute

"If you make less than $60,000 a year and you decide to invest $1,000 in a savings account, you'll get a tax credit which means, in essence, that the federal government will match your $1,000 with another $1,000. If you make less than $30,000 a year and you put $500 in a savings account, the federal government will match it with $1,500. If you make more than $60,000 and up to $100,000, you'll still get a match, but not as generous."

In fact, as a single person, Ms. Key would not be eligible for any tax credit under Mr. Gore's plan if she earns above $50,000. If she earns between $30,000 and $50,000, she could receive up to $500—half of what the vice president implied. She'd get a $1,000 credit only if she earns less than $30,000—and she'd be eligible for $1,500 only if she earned less than $15,000, at which point she presumably would not consider herself "middle class."

When Mr. Bush's turn came, he assured Ms. Key: "You're going to get tax relief under my plan." But he then digressed into a discussion of Medicare and, oddly, foreign policy.

Mr. Bush missed an opportunity to set the record straight on an aspect of tax cuts that his opponent habitually misrepresents—the implication that "middle class" taxpayers would fare better under the Gore plan. If Mr. Gore is going to insist on counting RSP as a tax cut rather than the income transfer program it actually is, then Mr. Bush is entitled to combine his income tax cut with his proposal to let workers control and privately invest up to 2% of their income, which is now part of the payroll tax for Social Security.

We don't know what Ms. Key makes, but only if she earns below $30,000 does she do better under Mr. Gore's plan—and then only if she can save $1,500 toward her retirement. But whatever her current salary, Ms. Key undoubtedly has aspirations to do better in the future. This is where the Bush plan really becomes significant—for the more Ms. Key makes, the more she will pay in income and Social Security taxes, and the more she will save under Mr. Bush's plan. Under Mr. Gore's plan, it's just the reverse. As her income rises, her matching retirement credit will fall. And once she makes $50,000, she gets absolutely no tax relief.

Ms. Key could do better only if she is in one of Al Gore's favored classes—if she cares for a relative with advanced Alzheimer's disease, for example, or if she purchases her own health insurance policy. In the long run, the Lisa Keys of America would do far better with a Bush tax cut. Sometime between now and election day, Mr. Bush should let them in on this secret.