Taxing Times on the Campaign Trail

The Urban Institute

Published: April 06, 2004     ||   Availability:  Printer-Friendly Version

ROBERT REISCHAUER, Urban Institute: My name is Bob Reischauer. I'm the president of the Urban Institute, and I want to welcome all of you who are here and those of you who are watching this on C-SPAN to this First Tuesday forum. In 2004 we've devoted our First Tuesday gatherings to discussions of issues that promise to be important to the political debate as the American people choose a new president, and as they choose a new Congress.

Today's topic is tax policy, and the format of this forum will be to have a few introductory remarks by the moderator, followed by a discussion of some of the facts and issues by two dispassionate researchers, followed then by commentary and observations and analysis by two individuals who are more directly involved in the political process who can react from a partisan perspective.

Before introducing the panelists, let me note how the debate over tax issues and the extent of tax revolts just aren't what they used to be. One hundred and seventy-five years ago or so, dissatisfied citizens went to the streets and marched on the centers of powers in the Whiskey Rebellion. A little bit over 200 years ago, men boarded ships and threw tea over the side, but if we go even further back in history, a thousand years ago or so, the lovely Lady Godiva pleaded with her husband to lower the taxes on the people of Coventry. He agreed of course but with a stipulation that he would do this only if she rode through the town without any clothes on. Of course, according to the story, the next day she called his bluff and did ride through town with her clothing largely her hair.

She accomplished her mission with the accomplices in the town who agreed that to have their tax lowered, they would shutter their windows and close their eyes, and of course everyone knows that almost everyone complied, save one individual, Tom, who was the tailor, who snuck a peek through the window and became the first original peeping Tom. Of course, he was blinded for this transgression, according to the story.

Well, the facts and the issues that we're going to discuss today might be both a little more relevant and a little more true than what I've said, and we have an outstanding panel to carry out this task.

Jodie Allen will be the moderator. She is the managing editor of U.S. News and World Report, and writes a column about the political economy for that magazine. She is a regular on the "Diane Rehm Show" Friday News Roundup, and has been the editor of the Outlook section of the Washington Post as well as the Washington Bureau chief for Slate magazine. Many, many years ago she was also a researcher here at the Urban Institute as well as an official at the Labor Department.

The first of the researchers I'd like to introduce is Jane Gravelle, who is a senior specialist in economic policy at the Congressional Research Service of the Library of Congress. She has also worked at the Treasury Department in the Office of Tax Analysis and taught at Boston University. She is a prolific author and contributor to the research literature on taxation in this country.

The second researcher is Leonard Burman. Len is a senior fellow here at the Urban Institute and a research professor at Georgetown University's School of Public Policy. He is also the codirector of the Urban-Brookings Tax Policy Center and has been a deputy assistant secretary for Tax Policy at the Treasury Department and a senior researcher at the Congressional Budget Office and the author of numerous articles and books.

The commentary from the political perspective will be led off by Michael Bloomfield, who is the executive vice president and managing director of the Mellman Group and has been a pollster and a consultant for a wide range of clients—Democratic Legislative Campaign Committee; legislative caucuses in Arizona, Georgia, and Kentucky; and a number of members of Congress, both in the House and in the Senate, including Senator John Corzine and Senator Reid. Before joining the Mellman Group, he served as the political director for the American-Israel Public Affairs Committee, AIPAC.

Last but certainly not least is Stuart Polk, who's the vice president of McLaughlin and Associates, and most recently worked on the Schwarzenegger campaign for governor and the California Recovery Team. He's been involved in the campaign's many Republican members of Congress, both the House and the Senate: Senator Warner, Senator Allen, Speaker of the House Hastert, Representative Crane, and many others.

So with that, let me turn this over to Jodie and look forward to the discussion.

JODIE ALLEN, U.S. News and World Report: Thank you, Bob. Well, this is, as policy analysts know, a familiar time in some ways for the field of tax analysis. And I say that because in your package you will see they asked me to contribute to your packet pieces I have written about taxes, and so first I looked and found my most recent column from U.S. News, and I gave it a quick look and I thought, gee, you know, I've written this a whole lot, and then I thought back to the very first op-ed piece I had written after coming to the Washington Post editorial page in 1980, and I looked it up and found that in it I was saying exactly the same things pretty much that I was saying lo these many years later. You will see it is dated July 1981, which of course was shortly before the passage of the big Reagan tax cuts. And I am railing away about the fact that we tend to use the tax code for all kinds of purposes other than raising revenue, that it has become the preferred method of disguising expenditures, and as a result we have a tax system that is neither effective nor efficient.

I think that we will hear more such discussion today, but brought up to date with regard to the facts and figures. However, there is an additional complication which I think I have also caused to have put into your packet, the recent "Doonesbury" strip in which it is explained to you how much more complicated the tax system has become because it used to at least be conceded on all sides that the purpose of taxes at all was to raise revenues so as to cover expenditures with at least the hope that one would match the other, but that turns out not to be the case anymore. Now it turns out that we want taxes to be far lower than expenditures, and indeed, we want expenditures to be rising because only in that way will we be able to cut spending.

Now, this has further complicated—and I'm sure you all understand that perhaps better than I—but it has certainly complicated the political debate when we get to the state where we believe that larger and larger deficits are necessary because that is the only way to build a case for more tax cuts and also more spending.

Today we are going—as Bob said—we are going to start with our panelist, Len Burman. And Len is going to focus primarily on the individual income tax, telling us a bit about both the Bush plans and the plans being offered to the extent that we can discern them yet by Democratic candidate, John Kerry.

So, Len.

LEONARD BURMAN, Urban Institute: Thanks, Jodie.

Just to set the stage, what I think I'd like to do would be to take you back in time to an earlier, simple time. Four years ago, the government forecasters were predicting a 10-year surplus of $5.6 trillion, and both candidates for the presidency were promising tax cuts, Bush's bigger than Gore's, and both promised that they would never, ever touch the Social Security surplus.

So where are we now? Four years later the 10-year forecast is for $1.9 trillion in deficits, not counting the $2.4 trillion that we plan to borrow from Social Security. And both candidates for presidency are promising tax cuts, Bush's bigger than Kerry's, and nobody ever talks about protecting the Social Security surplus.

So what are the issues? One of the president's single accomplishments has been the enactment of two very large tax cuts totaling about $2 trillion. He proposes to make those tax cuts, which mostly expire in 2010, permanent, another $1.1 trillion tax cut through 2014, and much more in the years beyond that. The question that's going to be debated in the campaign is whether that accomplishment represents a success or a failure. Senator Kerry argues that it's a failure because of its effect on the ballooning budget deficits and because it's too skewed to the rich, but he only proposes to roll back the tax cuts for high-income people and he also offers some new tax cuts of his own. President Bush argues that the tax cuts were necessary to stimulate the economy, and as Jodie mentioned, to constrain government. In addition, Senator Kerry has argued that the tax system is complicit in the flight of jobs overseas.

Now, the official projections don't look that bad. In your packet on the left-hand side there is one sheet with figures on both sides, and on the front side of the sheet is a chart labeled "baseline receipts and outlays as a percent of GDP." And what you can see in the chart is that on a unified basis, including Social Security, by the official projections—these are CBO's—by the year 2014, receipts and outlays are going to be in rough balance. There's actually going to be, under the official projections, a slight surplus. Now, if you look at the dash line you can also see that that surplus would entirely disappear if we didn't include the amount we're borrowing from Social Security. The dash line represents budget receipts not counting Social Security revenues.

But on the backside of that chart there are deficit projections going out over the next 10 years under different revenue scenarios. The first—you can see the unified baseline—this is just receipts minus outlays—again shows that the budget isn't balanced by the year 2014 on a unified basis. The first line down, though, going down to basically a $40 billion tax deficit over the next 10 years, shows the effect of extending Bush's tax cuts. I didn't have time to put Kerry's proposal on there, but basically it would be about halfway between the two.

Now, even Bush's tax cuts really understate how big of a hole we're going to be digging in terms of the deficit because it doesn't take into account other provisions that really have to be enacted. The next line, "extending other provisions," takes into account all sorts of provisions that are supposed to be temporary but they're extended year after year after year, and you can count on those provisions being extended over the next decade. The deficit gets bigger.

And the bottom line, and in a lot of ways the most scary, is one says "fix the AMT," the individual alternative minimum tax. There's this extremely complicated tax system, which has been discussed a lot, that barring—except for a temporary fix—it's supposed to expire at the end of this year, and both President Bush and Senator Kerry propose to extend it for one year. It's on track to be ensnaring 33 million families onto the AMT by the end of the decade, which means absolutely mind-numbing complexity and bigger taxes. And because it would be such a huge burden it's just not going to happen. But the revenues from the AMT are implicit in projections of both what President Bush and Senator Kerry would be taking in over the next decade, because neither one is proposing to deal with it.

The proposals—and in your packet there's a summary of the Kerry plan, and at the back of it there are tables 1A to 1D, which I stole from a paper by Peter Orszag and Bill Gale—they give a summary of what the 2001 and 2003 tax cuts would do. President Bush's main proposal is to make the 2001 and 2003 tax cuts permanent. He would cut tax rates across the board—or he did cut tax rates across the board. He'd make that permanent. He would end marriage penalties for middle-income families. It repeals the estate and gift tax in 2010. The current proposal would make that permanent. It lowers tax rates on dividends and capital gains. There are tax breaks for small businesses and incentives to invest in IRAs and pensions and education.

The overall cost over the decade is $1.2 trillion, most of it in the last four years. The budget, which isn't shown in the chart, would also expand tax-free savings opportunities, extent AMT relief for one year, provide a new health insurance tax credit and a deduction for high deductible health insurance, and close some corporate tax shelters. All told that would come to about another $200 billion over the decade.

Senator Kerry's proposals are actually a little bit unclear. We've sort of pulled together information from a variety of sources, but basically what it's proposing is a tax increase for high-income people. He would roll back the Bush tax cuts for people making more than $200,000 a year. We assume that means restoring the two top tax rates to what they were before the 2001, 2003 tax cuts were enacted, restoring the estate tax with a higher exemption threshold, and getting rid of a few other provisions that primarily benefit high-income people. He would also make the middle-class tax cuts permanent, and he proposes some new middle-class tax cuts: education tax credits, a refundable tax credit of up to $2,500 for post-secondary education; health insurance tax subsidies for small businesses and those between jobs and early retirees; a new jobs tax credit, which would be a two-year proposal, paid for with a tax holiday on multinational companies that bring back their profits to the United States; a tax increase on multinationals, which I think Jane is going to talk about a little bit; some corporate tax shelter closing as well; and tax credits for energy efficiency, high tech; and tax credits for employers of called up reservists.

Table 1 in the Kerry handout shows the overall revenue effects of the Kerry proposal compared to current law, which doesn't extend to anything, and also compared with an extended baseline that assumes that the provisions that President Bush proposes to extend actually are extended. What you can see is that over 10 years the Kerry proposals would reduce revenues by $643 billion. Not shown in the chart, but Bush's proposal would be about $1.2 trillion. So on net, Kerry's proposal would actually, compared with Bush's proposal, reduce the extent of budget deficits by $570 billion. It's a net tax increase relative to Bush.

There are also distribution tables that show how these things play out by income. The basic story is that the Kerry proposal is a tax cut for middle-income families and a tax increase for people at the top. It's a tax cut—in 2011 it's a tax cut primarily because it makes the middle-class tax cuts permanent, but it's also, relative to current law, a tax cut in 2011, even for people at the top, because under current law, all of the Bush tax cuts expire. But the last—if you look at table 8 you can see that if the Bush tax cuts don't expire in 2010, what the Kerry proposal basically amounts to is—this actually doesn't show the effect of the college tax credits, but not counting those it doesn't do much for people at the bottom and the middle, but it is a significant tax increase for people at the top.

I guess with that I'll turn it over to the next panelist.

JODIE ALLEN, U.S. News and World Report: Jane Gravelle is going to look more at the corporate tax side of the current situation.

JANE GRAVELLE, Congressional Research Service: If you'll look in the left side of your handout at the back, I have a couple-page handout including a very nice graph. First I'd like to say that the views I present here do not represent the views of the Congressional Research Service.

When I talk about the corporate tax sometimes I like to talk about the disappearing corporate tax, and certainly the corporate tax is a shadow of its former self. In the early 1950s it represented about 5 percent of GDP. By the 1960s it was about 4 percent. By 1980 it had declined to 2.4 percent, with some fluctuations along the way. And currently it's a historical all-time low of 1.4 percent of GDP. That low level is partly due to a current provision that allows firms to expense 50 percent of their equipment investment.

There's also a graph where I've done marginal tax rates of new investment. This is the tax rate that determines the burden on investment, and it includes both corporate and individual taxes, and it too is at an all-time low. Compared to a 70 percent rate in 1953 we're now a little over 30 percent, and about a quarter of the decline of that period is due to the provisions enacted in 2003 to lower the tax rate on dividends and to expand the percentage of equipment investment that can be deducted.

The equipment investment provision is temporary. It's supposed to expire at the end of this year. These changes don't include, by the way, the effects of actually a growing share of capital income that is in tax-favored forms such as 401(k)s and individual retirement accounts.

Now, let me warn you, we can't let the corporate tax disappear altogether. We have to keep it as long as we're going to have capital income tax because it's a vital backstop. Otherwise, with no corporate income tax, rich people would just put their money in corporations and never pay any taxes. So we have to have it, but it's been getting smaller all the time.

There are several legislative issues ahead. First, the president has proposed making dividend relief permanent. No one has yet proposed to make bonus depreciate permanent, so I'm not going to talk about that, although history suggests that somebody will. And other legislation that's currently being considered in the Congress is the provision to repeal the export subsidy, the extraterritorial income provision, which has been found to contravene World Trade Organization rules and is now permitting the European Union to impose countervailing tariffs. This provision gains revenue but the bills before the House and Senate either are revenue neutral, as in the case of the Senate, or probably going to lose some revenue, in the case of the House. Although these are constantly in flux they haven't been able to be passed. The Senate has recently added some energy provisions and other tax benefits to the bill to -- I suppose to try to get it passed. The main opposition in the House is the concern about repealing the export subsidy.

Senator Kerry, as Len mentioned, also has a corporate proposal that would lower the corporate rate and would have a partial end to provision called deferral, which allows companies to invest and keep their earnings abroad and not pay taxes until they're repatriated to the United States as dividends. That would apply to production that's for export outside of the country of production, so it wouldn't apply to tax haven operations like Ireland and Singapore and so forth.

So what are the important issues? Well, certainly I think I'm among the many economists who are greatly concerned about the deficit. Reductions in capital income taxes are often argued on the basis of growth, and I'm not persuaded that cuts in capital income tax have increased savings. I don't think the empirical evidence supports that, and I think it's almost certain that capital income tax cut that's financed by deficit is damaging to economic growth.

Now, for dividends and capital gains relief, this relief is probably desirable on efficiency grounds because it reduces corporate tax distortions, but you do have to trade these off against the revenue cost and the contributions to the deficit, and also against the distributional consequences, since capital income is helped by high-income individuals.

As sort of the international provisions, the export subsidy that we have right now benefits foreigners, and it distorts the allocation of investment in favor of exports, and so from an efficiency standpoint it's probably better not to have that provision. But there's also a provision, deferral of income of controlled corporations, which actually encourages companies to produce abroad. Investment abroad probably ultimately does harm both the U.S. worker by lowering wages and the FSC by losing revenue, and in fact, one of the original rationales for the export subsidy was kind of to offset this deferral, so if you're ending the export subsidy, in a sense one of the reasons that it makes a greater case for ending deferral. The House tax cut bill actually, though, expands subsidies for investment abroad, and so would probably increase the export of capital abroad.

The major provision that was viewed as a replacement for the export subsidy and the House legislation was a corporate tax cut for manufacturers. This provision is very popular, enjoys a lot of bipartisan support, but it is very troubling, I think, to tax analysts, mainly for administrative reasons. Tax experts behind the scenes have been worrying a great deal about the administrative problems of carving out a special tax cut. Any business engaged in different lines of business has a distribution or retailing segment, or is horizontally and vertically integrated is going to have an opportunity to allocate profits to a lower tax segment, so you're going to introduce all of the international problems of allocating profits to low-tax parts of your firm, which have been a big part of tax shelters and have been the subject of a lot of tax litigation that's going to spread into the entire domestic economy. And that's even aside from the issue of how you define manufacturing.

The states have had a lot of experience with problems with defining manufacturing. For example, consider a newspaper—and I'm not meaning to say that newspapers manufacture the news, but they do manufacture the newspaper, and there are also issues as to whether the content is manufactured. Some state courts have said that photography for the newspaper is manufacturing. There are issues about whether, for example, wrapping up products on the assembly line is part of manufacturing or not. So there's going to be a whole bunch of issues about what actually constitutes manufacturing.

Now, because of that, Senator Kerry's proposal for an across-the-board tax rate cut—corporate rate cut is certainly going to be superior in an administrative sense to carving out a special tax benefit, although his deferral proposal, which would probably move in the direction of more efficient allocation of capital and benefit U.S. workers, will be quite difficult to enforce because it's partial in nature.

There are also a series of provisions that are in the bills before the Senate and House to address tax shelters that should be part of the corporate tax debate. And while these are very complicated issues that I can't really talk about, there certainly are some of them that probably need a legislative remedy.

There is one issue, however, that probably should not play a role in designing corporate tax policy, and that is the issue of outsourcing, or any other sort of issue relating to job creation: fluctuations in employment, whether they're from recessions, changes in the composition of trade, plant relocations abroad, or relocations to other geographic areas of the United States, or from technological advance that displaces workers. It's very painful for the people that lose their jobs, and a challenge to our society as to how to deal with risk. But these are shorter-term issues that should not be the standards by which you craft a permanent corporate tax policy. And if you try to use the tax system to address short-run disruptions, you eventually end with a distorting tax system that really damages well-being in the long run.

JODIE ALLEN, U.S. News and World Report: Thanks, Jane.

Now we will turn to our more politically minded panelists, and we will start with Stuart.

STUART POLK, McLaughlin and Associates: All right. From doing these surveys out in the field, I've been particularly noticing that taxes as an issue, as a stand-alone issue, really doesn't bubble to the top. Right now it's about economy, jobs, terrorism and keeping America safe, and then taxes falls down towards some of the other social issues such as Social Security, Medicare. So right now you're seeing, as a stand-alone issue, taxes really isn't, you know, one of the priority issues. However, it is being pushed into kind of the limelight with the media advertising and the campaigns that they're going right now because it's linked to the economy and jobs. So taxes this year really isn't about putting more money back in the pockets of the individual voters; it's about creating jobs and it's the theme of jobs. Really, it's just like location, location, location; it's jobs, jobs, jobs in this cycle.

So what we're seeing is Bush with the recent—last month's jobs, over 300,000 new jobs. He's trying to capitalize on that, and he is saying that's because of his tax cut plan and his—wanting to make it permanent, so you're seeing—he's trying to capitalize and take advantage of the current environment. And come fall, where the traction will be is how the economy's doing—the status of the economy. Whether it's Kerry arguing against Bush, or Bush, you know, promoting his plan, it's really going to be—the person's going to have the advantage depending on how the economy is. And you're seeing right now Bush has taken the more aggressive approach than before—throughout the Democrat primary, he was the one who was taking more hits, but now he's taking a more aggressive approach and he's trying to define Kerry right now.

If you're looking in the ads, most of the issues that he's talking about are actually taxes, whether it's the marriage penalty tax, whether it's the gas tax, you know, he's right now trying to define Kerry in this window of opportunity right now and he's trying to define him that he's too liberal on these issues. So he is not only—you saw he started off with his leadership ads, but now he's switched right now to the tax ads, especially the gas tax coming on with all the prices raising above two dollars and coming into the summer months, you know, I think that he's looking to get some legs on the gas tax issue. So there are different issues as far as personal and overall theme of whether it's going to be promoting growth in the economy and jobs. Gas tax, you know, that's something more personalized than the issue of the income tax because people aren't really thinking of their income taxes right now; they're thinking more that as long as the plan works and keeps the economy growing, then that's a good thing.

And right now what you're going to find is that the race is so polarized that it's actually starting to polarize the issues and as the candidates come and debate these issues, the race itself is going to polarize, you know, the issues of taxes, so you're going to find once you inject the name of—whether it's Bush's plan versus Kerry's plan, you're going to find it's more or less going to follow the stream line of the actual ballots you've been seeing, which are—you know, depending on which surveys you see in the media, you have Kerry up one or Bush up one and pretty much through the summer it's just going to be bouncing around. They're going to stay within the margin of errors of each other.

So as an issue I would say it kind of contradicts itself, but taxes really aren't that important right now, but they are being used and they're being used, though, in a way to gain traction on the economy and jobs and being used to define Kerry. It's not really the issue itself that the voters are really concerned about; he's just—right now it's just trying to more or less go after the independents and the swing voters, maximize the base of the Republicans and the conservatives, and play for the middle.

And that's pretty much all I have.

JODIE ALLEN, U.S. News and World Report: Well, now we're getting a slightly—a somewhat more Democratic—

MICHAEL BLOOMFIELD, The Mellman Group: I hope more than somewhat Democratic.

JODIE ALLEN, U.S. News and World Report: Not in a generic sense, in the party affiliation sense, from Michael.

MICHAEL BLOOMFIELD, The Mellman Group: Well, as Jodie just said, I'll offer a Democratic perspective. I am not a policy analyst, but sometimes the policy people do cut right through it and the one thing I hope you picked up from listening to Len and Jane is that there is not a debate right now, not only at the presidential level, but the congressional level, about whether to cut taxes. The only debate that exists is this debate on which taxes to cut or how to implement different tax cuts, whether it's business tax cuts, tax cuts for individuals... So that is the debate. Now, as Stuart said that there may be people who want to make it different in a political sense, but right now where the voters are taxes are not a priority. They—also the voters don't see taxes as a policy solution, and I would say the question is open right now whether they will end up being, as Stuart hopes, a political solution for Republicans. I'd also say Republicans tend to see this both in a policy and a political sense as a panacea. If you don't know what to do on policy, you cut taxes. And then if you don't know what to do politically, you go after Democrats for raising taxes.

As I said, that's not the debate right now and there is a different view of voters on what's happening with taxes. I'm going to lay that out and explain—at the outset, though, I said it's not a priority and Stuart obviously sees the same thing. I'm not saying it's not a preference. Voters like lower taxes just like all of us as consumers like lower prices. The question, though, is where they're at right now—is what's happened with the tax cuts, what it's meant to them, what it's meant to the economy and then when they have to make choices, which again as I said using the comparison of consumers looking at prices and deciding on products, the same thing when they look at policies and choices they have to make about taxes.

As far as whether it's helped them, every poll you look at shows that voters do not think these tax cuts have meant a lot to them and their economy and how it's—you know, what it's meant to them and their lifestyle. The most recent Annenberg poll came out a month ago: 33 percent said the tax cuts had benefited them a great deal or somewhat, and then you get to 28 percent saying not much and you add that on to the 35 percent saying that it didn't help them at all. You end up with a strong majority saying the tax cuts really haven't meant much to them at all. And I will say, in focus group research we hear this very clearly and of course it's whatever they read, even a check they get back that they have forgotten—if you remember the great rebate—sending of the rebate checks, is that people forget those things and they don't feel it's been a big help to them.

Fox News, the same thing. Not my usual source for polling data, but they asked just, you know, do you think the tax cuts have been helpful or not helpful to you? And they came out with 61 percent saying they've not been helpful to them. Interesting point for the Bush administration to ponder is a CBS poll: recently people were asked if their federal tax has gone up or down and 32 percent of the people said their taxes have gone up because of the Bush administration with 19 percent saying down, 44 percent saying no effect. So obviously they should spend some more of their time not attacking John Kerry for tax plans he hasn't issued and maybe getting out their own policies if that's what they want to broadcast.

Now, the bigger question would be what do they think about the economy—has it helped the economy? And there is no poll I've seen that really says the voters think these tax cuts, either the initial set in 2001 or the more recent in 2003, have helped the economy. Looking at one poll Gallup did, this is a few months ago, 41 percent said it helped the economy, but the rest said it either hurt the economy or had no impact. There is just not a feeling out there that this has been something that's been important not only to them, but also that's helped the economy.

Now, part of this is the economy's not doing well, so they're not going to say that anything's helped it much, but there is not a feeling here among voters—boy, this is what we need to do. And this goes back to the issue of the priority level; and I won't start listing all the polls because Stuart sounds like he's seen the same thing—is that everybody says taxes are not the first thing out of people's lips right now. It is not where they're focused.

Jobs, Iraq, terrorism, healthcare: these are the four issues—I'd say healthcare being the one that, you know, focuses people the most when you talk to them on an individual basis in a focus group on qualitative research it comes out because that's what is hitting their pocketbook every day.

Now, looking at choices, and there are—you know, many choices have been proposed and if you look at Jodie's piece she's saying—cite back to her piece in the Post in 1981 and then a more recent piece in the U.S. News, it's always the issue of choices and how to voters prioritize tax cuts versus other things. Yes, they always are saying if you give them the choice between cutting services that go to you they will say we shouldn't have tax cuts, but more specifically right now they are saying they are worried about the deficit. And you look at two recent polls—one's an AP poll that came out—61 percent prioritize balancing the budget over getting tax cuts, 61 percent for balancing the budget, 36 percent say they would want tax cuts, and the same thing out of a CBS/New York Times poll where you had 56 percent—a little bit lower—on reducing the budget, but still only 36 percent, just a little bit over a third, saying tax cuts were their priority.

It is not a choice they're wanting to make, and of course then you've started saying what about cutting Social Security or programs that are more important to them than just the deficit; you will find there is less and less support. Now, I will say as the qualifier here, it's still a preference; people still like tax cuts, and you're not going to hear Democrats go around saying, okay, what we've got to do is we've got to increase taxes or we have to do something with taxes other than a debate on the fairness of the taxes and the way to have them most effectively help the economy. So Republicans are going to try to basically answer a question people aren't asking, which is how high do the Democrats want to raise taxes? They're trying to ask something that's not on people's minds while we're basically having this debate over where the tax cuts are best focused.

How does the debate play out? Stuart was talking about how close the race is right now and I'm seeing not only the presidential level, but in Senate races and generic races right now the generic ballot test for Democratic congressional candidates and Republican congressional candidates. I think the thing to look at with taxes is, yes, how it plays into the macro level, as Stuart said, but I think there's also about what they feel about the parties right now. It plays into images.

One of the biggest weakness the Republicans all along before—as soon as Bush got elected was this idea that they favor special interests, favor were big corporations versus ordinary people and you can see how this is, you know, the populist rhetoric. Well, it's also a perception—it's been a perception. In fact, the one nagging negative that's been there for the Bush administration even when—in the high point of their popularity after September 11th—there's always been that perception there. There's also been this concern that is much bigger now that it was in, you know, the end of 2001 about the deficit because there's no longer this feeling of, "Oh my gosh, we're in a crisis" every day. We understand that—why we're running such a big deficit. People don't understand it. People are concerned about the deficit and the bigger issue which Stuart mentioned: jobs and the economy overall.

To the extent that taxes are seen against that backdrop, all three of those play for a concern about where Bush is going on taxes and play into preconceived notions that Bush has before any debate on taxes right now that he's been irresponsible with the deficit, irresponsible with the economy, and favoring special interests. Those sort of things do take hold.

Now, I mentioned the macroeconomy, and there's the idea of what— do voters look at the macroeconomy or the microeconomy? Right now, in any poll you look at and there's one, the LA Times poll, the other—most recently I saw an ABC poll—people favor Kerry on taxes over Bush—Democratic candidate over the Republican candidate. They favor Democrats overall on the deficit; and before you say, oh my gosh, what has happened here? How can we have Democrats having an edge on taxes and on the deficit? It is the reality we are dealing with right now and it goes to this issue of the macroeconomy.

Voters—and I will end on this point and we can get to a discussion—voters aren't living in the macroeconomy; they're not worried about macroeconomic trends. They also aren't worried about microeconomic trends. What they're worried about is what they have to deal with: jobs. Why do people worry about jobs? They're worried about that not because of who they know is unemployed or who they know that's still looking for a better job with a better wage; it's because that could be them next and as long as that is the worry—again, it's not a macro or a micro—they'll be voting with their pocketbooks and voting about what they talk about at the kitchen table. It will be things that favor the Democrats and as long as those, you know, priorities exist, the tax debate is not only low, but is really not part of the debate as much as Republicans want to try to make it so.

JODIE ALLEN, U.S. News and World Report: Thank you, Stuart—I mean, thank you, Michael and Stuart and Len and Jane. I think we've had a very good laying out of the overall terrain here. We will now turn to questions. I will ask people in the audience to wait until I've recognized you, to wait until you've been given a microphone by—we have several around here, to stand to ask your question, and identify yourself by name and affiliation, and say whether you are directing your question to any particular member or members of the panel.

I will start off by exercising my moderator's right to ask a question, and pick up on a mention that Michael made in passing of the fairness issue both in terms of substance and in terms of whether it has any political traction. The particular dimension of the tax system that I wanted to mention is the current trend toward reducing taxes on capital income.

This has happened in a variety of ways and some of the new Bush proposals with regard to savings incentives—new forms of retirement savings would considerably accelerate this over time with the net result that we are moving more and more to what is sometimes euphemistically called a consumption tax but in fact is a wage tax—a tax on salaries and wages and I would like Len and Jane to discuss whether this is a good idea in conceptual terms, and Stu and Mike to consider whether there's any political hay to be made out of this. How do people feel about this? So—

LEONARD BURMAN, Urban Institute: There is a debate in the economics literature about whether the consumption tax or an income tax is a better base. It's actually not one that economists can resolve, although we could probably provide better data than we have so far. The tradeoff is really between efficiency and equity and there's a raging debate—it's exactly how much moving to a consumption tax would raise efficiency. The idea is that if you shifted the tax away from income towards consumption that you would lower the tax burden on—

JODIE ALLEN, U.S. News and World Report: Let me just stop you a minute.

LEONARD BURMAN, Urban Institute: Okay.

JODIE ALLEN, U.S. News and World Report: That's not what's happening now. This—investment income is frequently used for consumption—I give you Dennis Kozlowski and his $6,000 shower curtain. What we're talking about is the shift from capital income to wages and salaries where the—(audio break, tape change)—it's a tradeoff between efficiency and equity.

LEONARD BURMAN, Urban Institute: The point that Jodie's making is that in fact what we're doing is moving to a tax on wages where there are still deductions for things like interest expense. What this—and there are lots of ways we're doing it. You know, we've raised the limits on 401(k)s and IRAs, we've cut taxes on capital gains and dividends. Families can put $200,000 into college savings accounts for their kids that are tax free, or health savings accounts. The president's proposed new accounts that would allow families with two kids to set aside $30,000 a year tax free into savings accounts, but still including a lot of the trappings of an income tax.

Basically, what you would have under this scheme would be a system that is less efficient than an income tax with all of the unfairness of a consumption tax—sort of the worst of both worlds. My view is that there ought to be a debate out in the open about whether a consumption tax or an income tax is the proper base, and if consumption tax wins then we can talk about doing the whole thing and not just a wage tax with deductions.

JANE GRAVELLE, Congressional Research Service: Well, I think I could say again what I said in my presentation. I'm not convinced, despite what models tell us, that cutting rates on capital income actually does increase the savings rate. There's very little empirical evidence that that's the case or that it will necessarily even go in the right direction, and I do think these proposals are going to increase the deficit a good bit. We did a study of the president's IRA proposals—my colleague at CRS, Max Shvedov, who is in our audience here, and myself—to try to estimate roughly what the long-run revenue cost of the president's proposal would be and while it's hard to nail down, we're talking about tens of billions of dollars in revenue loss each year probably and that's for a proposal that in the short run is a revenue raiser of about $5 billion, so this is a very costly, very costly provision.

The other thing is that if you were going to try to go to an efficient system, you shouldn't do it in a sort of piecemeal set-aside account for this and account for that and have ceilings and so forth. You should try to do something that will both simplify and effect marginal decisionmaking, and so this sort of halfway approach to getting to a consumption tax or a wage tax—this is really more to me like a wage tax base—I don't think works nearly as well in the long run. But again, I think the most important tool to deal with economic growth is to reduce the deficit. I think that's got the clearest evidence of all that it would help our long-run growth.

JODIE ALLEN, U.S. News and World Report: Stu, just briefly, do you see any traction in the equity issue or do people simply not care—is that just too fine grain?

STUART POLK, McLaughlin and Associates: It would be a tough one. It would be a tough sell insofar as making it concise so that people could understand it and digest it. I don't know if that would be a possibility in this environment right now.

MICHAEL BLOOMFIELD, The Mellman Group: Yeah, I don't believe there's any thirst for a discussion right now of consumption taxes or a different system, and when you say, you know, effectiveness and efficiency, that's not what people are talking about. They're talking about—worried about in government, as they always do, you know, cut out government waste, more efficient programs, but there's not an idea of we have to make the tax system more efficient—we're worried about that. Yes, they'd like it lower, which has been going on—

JODIE ALLEN, U.S. News and World Report: But what about fairer?

MICHAEL BLOOMFIELD, The Mellman Group: But fairer, I was going to say, to me is a different issue. That is the idea that—you know, with Democrats at all levels and just also in the states where we're pushing the idea of looking at tax cuts, keeping them, and looking at some income-differentials. In other words, as Len I think described the Care proposal, you know, talking about repealing the tax cut for those making over $200,000—people do support that. There is the idea that, yes, you know, there are certain people and it's not just Dennis Kozlowski and his $6,000 shower curtain, though I'm sure he's created a lot of jobs with purchases like that, is that there is the idea that there is a difference here and that works to our advantage.

Now to the extent that it works against Democrats is where someone takes part of the proposal and says, well, see, they're going to say they're not really for tax cuts because they have all these ifs, ands, and buts. And that will, I think, be part of a tax debate at some point. If that's all the Republicans have to throw, they will be throwing—oh, well, wait a second. It's not that they're for tax cuts because there are all these exceptions, but I think the idea as much as we can keep it on fairness, helping the middle class, I think this is a winner for us.

JODIE ALLEN, U.S. News and World Report: Now, questions from the audience. Yes.

RICHELLE FRIEDMAN, Children's Defense Fund: I'm interested in maybe a two-part question that kind of gets, I think, to the fairness piece. I find it interesting and I wondered at what point maybe the voters might become outraged on two levels. First, I read recently about the hundreds of billions of dollars that are uncollected by the IRS and at the same time, particularly people on the Republican side want to focus a lot of energy on getting at waste, fraud, and abuse in the earned income tax credit system, which is incredibly important for low-income families.

Then also, picking up on what Jane said about how the corporate share of the tax income or revenue is at a historical low while we read about corporate corruption and huge income for CEOs, and I just wondered at what point, particularly maybe Stuart and Michael, who commented on voter concern—at what point does some of this come into play regarding the fairness issue?

LEONARD BURMAN, Urban Institute: I mean, you make a good point about maybe a misplacement of IRS resources. It's really not any problem with trying to make the EITC work better—I think it's actually a good idea—but the problem is that the IRS has put a disproportionate amount of its resources into going after low-income people who are noncompliant, and the odds of being audited are like twice as high if you're on the Earned Income Tax Credit than they are if you're a millionaire. And if you look at the IRS's new budget authority, a significant share of the increase goes to tracking this very small group that actually there's not even very much money at stake.

Commissioner Rosati testified a couple years ago that there was $30 billion a year in tax assessments that the IRS knew about—they actually caught people who were cheating, but they never collected because they didn't have the resources to do it. They've shifted people from auditing to answering telephones and doing other things. You know, those are—providing customer service is an important thing, but the IRS sort of perpetually to have this problem that they can't actually implement our complicated tax system altogether. They either spend some resources on auditing and then there are mock hearings where IRS agents are made to look like Mafioso, and then they move all their resources into answering telephones and don't even enforce the tax system.

MICHAEL BLOOMFIELD, The Mellman Group: There are two different issues. One is the idea of making the IRS more effective. While everyone would love to cut waste, fraud, and abuse out of the IRS, the idea of saying we're going to make it a better agency by having it go more effectively after even people who aren't paying taxes probably politically isn't such a good thing. The IRS is not exactly the political symbol every candidate wants to be out there improving and protecting. There are people who want to abolish it, which is a different thing, but I'm not sure how much, you know, political hay there is to be made with that, but the difference between—and you're picking symbols here and symbols are what often drives campaigns if they get to the root of what are real policy differences.

The comparison of the Earned Income Tax Credit—you know, I'm not as familiar as Len is with the enforcement of it or how the IRS staffs it, but you look at last year in the debate over the tax bill and you had Republicans willing to do away with tax credits for children and single mothers and low-income families, and then at the same time they were giving tax cuts to people at the top end of the pay spectrum. It was a real difference and the symbols there were the single mother versus Enron at that point—I don't think Tyco had taken over as the big story. But the idea if Enron is who they favored—rich individuals and the corporate execs who have become really a sort of symbol of the corporate excess for what people are concerned about in this country versus defending single mothers and the tax credit, and the Republicans' inability to even, I would say, politically get their acts together and quickly remedy that I think is something that is a symbol for us.

I don't know if that specific instance will be something that's hammered home in the campaign repeatedly. I think it does go into the broader symbols, though, you'll see used from now till November, and it gets back to the issue of fairness.

JODIE ALLEN, U.S. News and World Report: And there's no traction in saying, these cheats aren't paying their taxes, you are. Let's get—

MICHAEL BLOOMFIELD, The Mellman Group: No, I'm saying there is. I'm saying I'm not sure about the Earned Income Tax Credit alone.

JODIE ALLEN, U.S. News and World Report: Oh, alone.

MICHAEL BLOOMFIELD, The Mellman Group: As a symbol, but it --

JODIE ALLEN, U.S. News and World Report: But when this guy at the Tyco trial gets up and he'd forgotten to put a couple million dollars and was saying, oh, we hadn't noticed it. You know.

JANE GRAVELLE, Congressional Research Service: Could I just—one of the things that did sort of get a bit in the news, but it's faded away, is the expatriate corporations that moved their headquarters to the Cayman Islands or Bermuda or so forth. Now it seemed to me—and I don't know, the political people would know better, but that was something that certainly got into the business news and those kinds of corporate tax shelters are going on somewhat unchecked in many ways, although I think IRS is trying to work on them. They're—the president has proposed to do something to shut down the New York subway and the subway systems of Europe selling and leasing back their facilities from corporations which basically just allow them to take advantage of depreciation, so I don't know if those ever make it to the level of—you know, the attention of the campaign, but they have certainly made the news at least.

MICHAEL BLOOMFIELD, The Mellman Group: Going after corporate excess as I'm calling it—corporate accountability and also the idea of looking at specific loopholes is definitely something that resonates with voters. I think the idea is, though, not just to look at, one, the tax credit you mentioned, which is part of the difference, but the idea of the fairness to a broader section of people—the middle class.

Basically people who are—the corporate people who were taking away from your retirement in the Enron case, they're getting tax breaks, going offshore with not their manufacturing, just their headquarters—basically taking advantage of tax loopholes while you're being hit harder. And I'm saying not just with the idea—this goes back to what I was saying about the macroeconomy—they're being hit harder because they're worrying about their health care cost, they're worrying about the cost of their retirement. They're worried about all these things. They don't just look at it as a tax policy issue.

BURT SEIDMAN, Alliance for Retired Americans: My question is perhaps to Stuart. I understand and seeing the polls that the tax issue per se falls at least so that the people who are not much concerned with it, as compared with other issues, are—fall into the majority, but I'm now asking about the minority who—I don't know that they're a minority, but let's say the Bush base—are they concerned about—are they enthusiastically with Bush—he seems to be very enthusiastic on it—on cutting taxes with—and they presumably don't buy what we all know, and that is that they favor the rich.

STUART POLK, McLaughlin and Associates: As I was saying, as the race is polarized, when you look at these issues, if you were to look at the cross tabs, you know, whether it's saying on certain issues you're going to see, like, if it's Bush versus Kerry's plan, you're going to see that it's pretty close as the total, but when you look in the cross tabs and the subcells of Republican, Democrat, and independent, it's polarized. I mean, it's going the opposite ways.

So right now it's still a little early in the states, you know, as far as maximizing—neither of them are really maximizing their base to the fullest extent that they want to at this moment in time, but as it gets focused—that's why this is a very unique situation as far as—this election is starting way early, so the question is, do people have the attention span to go through the summer months back into the fall conventions, when the debates start; that's usually when things start picking up and people are focusing, but as of right now, I would say that it could be more. It's not as, I would say—you know, they're not strongly backing it right now, but I don't think the interest right now is just being generated, and as the election goes on, you're going to see it crystallize a lot more.

MIKE MCNAMEE, Business Week: Obviously the two candidates have a very different approach if the issue is jobs, jobs, jobs, jobs, jobs. Mr. Kerry wants to do very targeted things: a payroll tax set off in the corporate rate, the outsourcing things. Bush's approach is, you know, broad-based tax cuts. It would seem, if the issue was jobs, jobs, jobs, that Kerry has the better of the political argument, so I'd like to get sort of a Republican response to why that targeted approach is a bad idea. But economically, is it a wash, or is there a case to be made one way or the other that targeting taxes for job creation, as he has, has any effect whatsoever.

STUART POLK, McLaughlin and Associates: As far as targeting and the broad base, you're saying, versus those two tactics? You know, it's really going to come down to, as Michael was saying, so what's important to you? Some people are going to be looking at—(unintelligible)—how do you judge how well the economy is doing? Is it your personal financial situation, that you have a job, health care? If you are secure, is it the stock market? You know, these are all things to take into consideration.

As far as Bush's broad base, you know, going back to in terms of what's fair, he's thinking that's what's fair. He's getting all taxpayers a tax cut, not just a selected few or certain groups, individual groups. So he's doing a broad base and he's trying to stimulate the economy now. As far as whether people can digest Kerry's—I don't know if the focus—if he has to make those cases on all those individual points, the question is, does it come together at the end, and we'll have to wait and see about that.

JODIE ALLEN, U.S. News and World Report: Want to add anything?

MICHAEL BLOOMFIELD, The Mellman Group: Len and Jane are going to talk—were you asking also about just what the actual impact was?

MIKE MCNAMEE, Business Week: It seems to me that going out and saying, you know, I have a tax plan for jobs, it ought to resonate, or that I have a tax plan for the economy.

JANE GRAVELLE, Congressional Research Service: Even if it's not true? (Laughter.)

MICHAEL BLOOMFIELD, The Mellman Group: Well, it goes back to what I was saying before about answering the question the voters are asking. They're not asking right now about taxes; they're asking about jobs. And they don't look at this as—you know, we may put it in the context of a tax plan but they're looking at is as, which candidate is answering jobs, which candidate has a policy on jobs? Bush has basically laid this out from the beginning that he has only had one policy, and as I said before, it may be people prefer tax cuts, just like they prefer lower prices, but they don't see it as a policy solution, nor do they see it as a panacea. And as I said, Bush is, I think, looking for it both as a panacea policywise and politically.

JODIE ALLEN, U.S. News and World Report: Do you want to add something?

LEONARD BURMAN, Urban Institute: I think most economists would say that—and Jane alluded to this earlier—that you ought not to focus on jobs per se; you ought to focus on the economy overall, having a tax system that's not a great drain on the economy.

The Kerry proposal has this new jobs tax credit, which is actually like something that's proposed by—it was enacted in the Carter administration. It's a tax credit to offset the payroll taxes of employers for additional people hired. It's temporary. There is some evidence that among employers who actually understood that the credit existed in the 1970s there was a little bit of additional hiring. The Kerry campaign also has a proposal to repeal deferral of tax liability on foreign entities to the extent that those companies are exporting rather than producing for the local market. That probably doesn't really have anything to do with jobs in the long run.

The problem with the proposal is that it's likely to be somewhat complicated, as Jane had mentioned, and I guess in terms of explaining this to the voters, given that economists can't even agree on how the proposal would work, would be something of a challenge.

DAVID BRUNORI, Tax Notes: A follow-up question there. The Kerry campaign, when they announced their tax proposal, said it was going to create 10 million new jobs. So I would like to ask Drs. Burman or Gravelle, does anybody believe that?

JANE GRAVELLE, Congressional Research Service: I guess the—if you have a slack economy you can possibly use tax cuts to expand the economy, but we're sort of not at the state. We seem to be recovering now. So I don't know to what extent dollars in terms of an aggregate tax cut, in the short run, would turn into jobs. I mean, I think that's a question to be directed at a macroeconomist. As a long-term plan, economies don't need incentives to create jobs. I mean, jobs are generated. Look at history. I mean, when the baby boom—women entered the labor force, all those people got jobs eventually.

So in the long run there's no reason or need to direct your tax policy at job creation, except in the very narrow sense that you might be improving training for people who can't work because they can't produce the minimum wage, but I don't think that's a very important part of things.

The targeted proposals, as Len said, historically it's not been clear how well they've worked. Lots of time employers just weren't aware of them, or they sort of went after the fact, after they'd already made their decisions and took advantage of the tax benefit. It depends a lot on how well it's advertised and how aware employers are of it.

But 10 million sounds to me like a big number, I guess, but I'm not a macroeconomist.

JODIE ALLEN, U.S. News and World Report: Yes?

PETER ORSZAG, Brookings Institution: Michael, you mentioned that two of the most salient concerns among the electorate are health care and the deficit. And Len mentioned that Senator Kerry's proposals raise more revenue than the president's do. So I want to ask Len and Jane to what extent that additional revenue is used for health care as opposed to reducing the deficit compared to the president's proposals. And then I want to ask Michael to what extent it should be used for one versus the other. And I guess, Stuart, if you don't have a conflict of interest I'd be interested in your advice to Senator Kerry also.

MICHAEL BLOOMFIELD, The Mellman Group: Let me just correct one thing. I don't know if I said that before; if I did I want to correct it, is that I don't think deficit is the number-two thing behind health care. I was just saying the deficit is part of the overall economy, health care being number one and the overall economy, of which the deficit is a part, I would put second.

LEONARD BURMAN, Urban Institute: The Kerry proposal has $177 billion in tax incentives to encourage health insurance coverage targeted to small businesses, and those between jobs and people between age 55 and 64. This is according to their estimates; we haven't estimated it. The president has tax credits and deductions in the budget that would be about $120 billion, so there's not a huge difference. The big difference is probably on the spending side, and I actually don't know what the estimates are for the Kerry health plan. Do you, Peter?

JANE GRAVELLE, Congressional Research Service: I really haven't studied those parts of the plan so I wouldn't be able to answer that.

LEONARD BURMAN, Urban Institute: There is a big difference in emphasis in terms of the way the tax credits would work, and the Kerry plan, the proposals, I think one of them provided a tax credit to small businesses that provide coverage to their workers, the president's proposal that all of the tax incentives are for individuals who are getting health insurance outside of work. There's basically a fundamental philosophical difference as to whether you should build on the employer-based system or whether you should make it easier for people that don't have health insurance at work to be able to get it.

The concern among some health analysts is that if you lower the costs of health insurance outside of work, more employers will decide not to offer health insurance, and ultimately the consequence could be that there could be fewer people covered by insurance.

WARREN ROJAS, Tax Notes: Two quick questions based on taxes as political tools, one extrapolating on the whole idea of taxes as a secondary issue: given the length of the election, will Senator Kerry be able to get away with simply delineating his $10 million jobs plan, laying out how that's going to work, and never connecting the dots on some of the other tax credits—these flow to the college opportunity things. And can Bush get away with just the attack ads and saying, trust me, I did it twice before, or is anyone going to demand that they lay out a comprehensive package or outline what they would do in a Bush—if he succeeded in the election in November?

And second of all, kind of building on what Dr. Burman said earlier about—have conservatives secured such a foothold that even in the face of massive deficits and a complete fiscal turnaround—every Democratic candidate opened with a tax cut of some sort, whether it be health care, college tuition. Are tax cuts now the opening gambit for future campaigns?

STUART POLK, McLaughlin and Associates: Well, as far as Bush and where he will be with his message and where he'll be in November, I mean, like we were saying before, everyone is going to what's important to them and how they view what the economy is as far as good shape or bad shape.

So, come November, what they're going to judge is—first I'm going to say, the majority of people have already made up their minds on who they're going to vote for. I would say the majority as far as depending on what you're looking at—you know, you only have single-digit undecided and then as far as you know, kind of a soft support, it's only maybe 5, 6 percent on each side.

So there really isn't the room as far as the universe of who Bush and Kerry are going after in the middle or these swing voters, whoever they may be, is very small, and they're going to be judging later on, and they're going to listen to the messages but what's going to carry the message at the end of the day is where the economy is at that time. So that's how they're going to be judging it. I don't know.

JODIE ALLEN, U.S. News and World Report: So basically you're saying that policy, in any detail, doesn't matter.

STUART POLK, McLaughlin and Associates: No, I would—

(Cross talk.)

JODIE ALLEN, U.S. News and World Report: And to return to the specific question, for example, does Kerry have to—you know, the 10 million jobs; well, why not say 20 million?

MICHAEL BLOOMFIELD, The Mellman Group: Those are numbers I'm not going to tell you that I have an idea on going through—in other words I'm not a macro- or microeconomist, but as far as the idea of not the law of economics, the law of politics, elections like this, where you have an incumbent, it's going to be a referendum on the incumbent on the presidential level, where people know Bush and have a feel about him and will be judging his policies. So there's going to be a referendum on him first, and it is—and I use this word not tongue-in-cheek—but it is incumbent on him to keep with his policies, and people will judge them as they—as Stuart was saying—basically on what the results are.

Now, with Kerry, what he has done is put out a plan—and I don't think this is the last policy initiative he will put out. I think, Jodie, that policy initiatives are important to show the alternative. As far as going back the counting of the 10 million jobs, you know, part of this is deciding what you want voters to be discussing when they go to the polls, and we would love them to be discussing the different numbers and get into a debate on our jobs plan. Why? First because we would say, let's talk about numbers but talk not just about questions about what we knew about intelligence in Iraq but also the Medicare estimates last year, estimates on the deficit, playing games with the deficit and the tax cuts in 2001, about having them sunset 10 years later, which was just totally a scam on deficit projections. And it's not something like saying, well, they're a little rosy or a little less rosy; it's just saying, this was playing with the numbers in the same way that people—Enron and Tyko did, et cetera. If that's the debate people want to have, we can have that.

The second reason is because on jobs, we have a jobs plan. Kerry—Democrats in almost every state that I'm working have a jobs plan. Republicans' jobs plan is often just to say—and clearly President Bush—going to your question—is just to say, well, I've done it; trust me. And you said, trust me; I'll have more tax cuts. At some point even he can't keep pushing up the deficit, and so that's why he's just turning now to an attack on Kerry and saying, well, this guy will do something different.

GENE STEUERLE, Urban Institute: I wonder if there's not a contradiction between, Michael, what you say the public feels about taxes and what the candidates are telling us in the following sense, that if you look at even a very significant tax cut, say 10 percent of your taxes being cut, that probably amounts, to the average person, about one cent on the dollar. So it's not hard to understand why that doesn't rank very high on their set of priorities. Whether they get a wage of 2 percent this year versus 4 percent is probably more important to them than whether they get a tax cut. And whether they keep a job is a heck of a lot more important.

So it makes sense that the public ranks tax cuts very low. But now we have the presidential candidates trying to tell us, well, we if we just put them in charge of a little bit of tax policy, they're going to do great things like create 10 million jobs, which as we know is nothing more than a projection of what a normal economic recovery and some growth would do to the economy and really has nothing at all to do with what the tax cut's going to do—or President Bush claiming that his tax cuts are what's causing the economy to turn around.

How long will the public believe the one story that changing tax cuts, which have only a small percent of the economy—these things that are not very important to them, how long are they going to believe that these presidential candidates are going to be able to do dynamic things for them, or is this story just sort of on the side?

MICHAEL BLOOMFIELD, The Mellman Group: I'm not sure I see such a contradiction. What I'm seeing is that it is not that people are looking at tax cuts; they're looking at jobs. And in this case, this tax package that Kerry's talking about, the corporate taxes, for instance, is something addressing the jobs issue. It is not saying, okay, we're going to unveil tax policy, because I think what you're hearing consistently from both of us—and what you're saying you are intuiting that the voters think is that they're not looking at taxes as the big, driving issue now. They're looking at jobs, they're looking at fairness, they're looking at other things, of which taxes can be one example of how you can show that you will address those things, and then in a policy sense say, okay, this package will create jobs using the tax code. But it is not leaning the other way and saying, we hear a big hue and cry that we have to do something with the tax code, and this change will change the jobs.

LEONARD BURMAN, Urban Institute: I actually want to ask a question. The short-term budget projections pale by comparison to the long-term. When does the deficit become an issue? (Laughter.) Is it when we go to the IMF for our bailout package, or—(laughter)?

MICHAEL BLOOMFIELD, The Mellman Group: I mean, you go back to 1992 and, you know, Ross Perot, so you had someone with a little bit of money and that he put really behind one issue, and there was—forgetting his own personality traits, there was much less because the campaign was running on this one issue as opposed to running it based on other people that didn't have, you know, this trait or that trait that he had. It was very much one issue: the budget deficit and irresponsibility. To the extent that it gets to be irresponsibility, the deficit takes on something big, but right now, I don't think people see the deficit as—because of this deficit we can't do X, Y, and Z.

One of the things I think that's undercutting the president in terms of his economic policies, in terms of the image of them, not the actual economic impact, but is the idea that he clearly sees no limits because he is able to say, you know, we can fight terrorism, we can fight a war in Iraq, we can fight terrorism, we can fight a war in Iraq, we can—you know, give me $87 billion; I can do all these things, and there's never any thought that the deficit means at some point we have to stop spending, and it does undercut what has been—I would say Republicans like to go to bed at night thinking they're going to be the stewards of the economy and that they have the business sense, and as I said, it may seem like a strange world, but right now Kerry and Democrats are having the advantage on that in every poll I've seen, on things like practical business sense, economics, tax cuts.

JODIE ALLEN, U.S. News and World Report: But if you had to bet I think I would bet that it won't be this time. I mean, I think you're right about Perot and Newt Gingrich. Newt Gingrich may be the big issue, but it will—most likely, I bet, it's a forcing event like all of a sudden foreign investors don't want to buy bonds anymore and the dollar falls and interest rates jerk up, and suddenly because pain is felt. But at the moment there's no pain. They keep lending us money and we just keep buying stuff that's very cheap. Why not?

One more question.

JAMES TOEDTMAN, Newsday: Stuart, you've been very silent all this time. I wonder if you could talk about your sense of is there any vulnerability in any polling that you see on the issue of special interests or favoritism or the issue of taxes and the issue of deficit in particular, deficit and the special interests.

STUART POLK, McLaughlin and Associates: Special interests I have not seen as far as—for President Bush in particular?

Q: (Off mike.)

STUART POLK, McLaughlin and Associates: No, I have not seen that. I think he has fought back when he's come down on special interests, and particularly had the answer just from the environment of Enron, MCI, you know, all the corporations, and he was trying to bring back that—he wanted to promote that, we've got to come down hard on these guys and we've got to establish trust back in corporations and in the business world itself.

JAMES TOEDTMAN, Newsday: First, is Michael just blowing smoke here, but also bring it to the issue of the corporations paying so little in terms of corporate taxes. Is that not—I mean, Enron was sort of two years ago. Do you see anything in your polling now that suggests that this might emerge as an issue this year—there might be some vulnerability this year?

STUART POLK, McLaughlin and Associates: As far as that, it has not been a focus. As far as the Democrats maybe going out polling and probing and looking for that, it's quite possible. He might be able to answer that better than I would.

Q: (Off mike.) (Laughter.) You're presumably talking to the same people.

STUART POLK, McLaughlin and Associates: It's quite possible. But as far as corruption, I don't see it playing or getting that much weight in this upcoming election. As of right now, the economy and jobs, as far as is that a subset of it? Yes. So the president is trying to deal with that, but as far as—no, I don't see it being a cutting issue that will sway voters over—or peel away voters from Bush's base, if that's what you're more asking.

JODIE ALLEN, U.S. News and World Report: Well, I want to thank all our panelists greatly. I want to thank you all for being a good audience and asking great questions, and will you join me in appreciating our panel?

(Applause.)

(END)