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Clinton Expected to Sign Small Business Tax
and Health Insurance Bills This Week

Monday, August 19, 1996

Deloitte & Touche OnLine

Though no formal announcements have been made, the White House tentatively scheduled bill signings Aug. 20 for the small business tax incentive bill (HR 3448) and Aug. 21 for the health insurance reform bill (HR 3103).

The small business tax bill increases the minimum wage, increases expensing limits for small businesses, extends various expired tax provisions, phases out the possessions tax credit, as well as taking other steps to help small businesses.

The health care bill increases the tax deduction for the self-employed, provides various long-term health care benefits, establishes a medical savings account pilot program, penalizes individuals who give up their U.S. citizenship to avoid U.S. taxation, and disallows the interest deduction for corporate-owned life insurance loans.

Dole Accepts GOP Nomination: Bob Dole formally accepted the Republican presidential nomination late Thursday and reiterated his proposal to reduce the tax burden on individuals and businesses.

Dole promised to work with Vice President Jack Kemp and the GOP Congress to cut taxes, if elected. "I will not be satisfied until we have reformed our entire tax code, and made it fairer, flatter and simpler," he said.

Americans have the right to keep what they earn, Dole said. "The principle involved here is time-honored and true and that is: it’s your money. You shouldn’t have to apologize for wanting to keep what you earn."

Dole specifically promised to balance the federal budget deficit, cut taxes across the board, create a targeted $500 per child tax credit, help small businesses by halving the capital gains tax rate, expand individual retirement accounts, provide estate tax relief, and reform the Internal Revenue Service.

The GOP candidate also talked about character issues, emphasizing the fortitude that helped him succeed despite wounds he received during World War II. By emphasizing character, Dole is attempting to gain an edge over President Bill Clinton, who has been attacked for his association with the Whitewater scandal and other problems.

Dole also avoided controversial social issues, such as abortion, stating the Republican party "is broad and inclusive." Disagreement within the party over abortion could have caused a floor fight at the convention, but the problems were worked out in advance and the meeting went smoothly.

Analyses Offer Different Conclusions: The Dole tax cut proposal was reviewed by several think tanks, including the conservative Tax Foundation, which found the plan "plausible," and the anti-deficit Concord Coalition, which urged policy makers to exercise caution when considering tax cuts.

"The additional economic growth implied by [Dole’s] revenue estimates is quite modest and therefore plausible," the Tax Foundation’s analysis concluded. Dole advocates a $548 billion tax cut, which would be offset by $148 billion in additional revenue generated by economic growth and by $217 billion in spending cuts.

Certain elements of the Dole plan, such as the proposed expansion of individual retirement accounts, would have longer-term economic growth benefits than other components, such as the child tax credit and the repeal of the increase in the tax on social security benefits.

Concord Questions Tax Cut: The Concord Coalition’s analysis warned that the Dole tax cut proposal may be based on questionable economic assumptions and the proposal may end up increasing the budget deficit.

Economic activity does increase as a result of tax cuts, "but Concord believes that policy makers should be extremely cautious and not count on gigantic dividends, particularly when they are based on faulty assumptions or on forays into uncharted tax-cut territory," the group said.

The Concord Coalition also noted that by historic standards the Dole proposal is rather large. The proposed $548 billion tax cut is larger than anything congressional Republicans have proposed, even at the height of the Contract With America, which originally called for a $350 billion tax cut over seven years.

Similarly, the liberal Center on Budget and Policy Priorities (CBPP) warned that if Dole’s projections and assumptions prove to be inaccurate, "the higher than planned deficits would themselves retard economic growth."

The spending cuts may prove "too deep, politically too controversial or both" and the revenue generated from the cuts may be too optimistic, the CBPP report warned.

CBO Lowers Budget Deficit Forecast: The federal budget deficit for fiscal 1996 will be $116 billion, $28 billion less than the amount projected in May and $48 billion less than the fiscal 1995 deficit, the Congressional Budget Office predicted.

The deficit for 1996 will decline for the fourth straight year and will be at the lowest nominal level since 1981, said CBO’s report The Economic and Budget Outlook: An Update.

Higher than expected tax revenues -- $22 billion more -- account for about 80% of the revision to the forecast, the report explained, noting that the remainder came from lower than expected government outlays.