CALCULATING DOLE: 15% OR BUST

By GEORGE J. CHURCH

Ask an economic question about Bob Dole's tax-cut proposal, and campaign advisers are happy to give a political answer. For instance, Why did Dole make a 15% slash in individual income-tax rates the centerpiece of his economic program rather than feature a more complex, rival alternative? Because it's easier to explain to voters, says Michigan Republican Senator Spencer Abraham, who helped sell Dole on the idea. Whatever the economic merits of the other plan, "people would have to think about their adjusted gross income and payroll tax. The concept doesn't translate to everyone."

And getting people not to think might be helpful, particularly since some of Dole's numbers do not seem to add up. No matter, say campaign aides; he's running for President, not accountant in chief. Besides, adds Donald Rumsfeld, a senior policy adviser, the Republican nominee is not talking to economists: "The real audience here is the American people." Rumsfeld figures they are ripe for a debate on taxes. "As we saw with [Governors] Christie Whitman in New Jersey and John Engler in Michigan, it is a debate Republicans can win," he says.

All of which points to the prime difficulty of offering an economic critique of the tax plan Dole finally unveiled last week: it is not really an economic program at all. The plan's true purpose is to bait enough voters with the promise of lower tax bills so as to overcome President Clinton's towering lead in the polls.

Is that still possible? Dole's advisers talk up voters' lingering doubts about Clinton's credibility. But the Republican hopeful could be creating a credibility chasm of his own. His proposed tax cuts are so enormous--$551 billion over six years, according to the nonpartisan Joint Tax Committee--as to leave him wide open to charges that they will cause the federal deficit to balloon. And thanks in no small part to the decades-long preaching of a former Senator named Robert J. Dole, polls lately indicate the public prefers lower deficits to lower taxes. So, in fact, do Republican Convention delegates. Some 1,000 of them, polled for TIME and CNN by Yankelovitch Partners Inc., rated deficit cutting "more important" than tax reduction, 47% to 41%.

Dole insists he can balance the budget by 2002 through a combination of economic growth--to be spurred by the tax cuts--and sharp, though mostly unspecified, reductions in spending. Trust me, he is saying. He told the Chicago Chamber of Commerce, "I grew up a poor boy in Russell, Kansas. I know the importance of living within your means, and I know the consequences of not doing that. Deficit reduction is in my blood."

The promise was not enough to convince skeptics, even on traditionally Republican Wall Street. Says Stephen Roach, chief economist for Morgan Stanley: "There is not one shred of credible evidence on how Dole will pay for his plan. Fully 65% of the revenue breaks are to be financed by nothing more than wishful thinking. This is as vague as it gets."

Actually, most of the tax cuts are quite specific. Besides having their tax rates lowered in increments over four years, parents could further reduce taxes by $500 for each child 18 or younger. A family of four with an income of $35,000 a year would save $1,400 a year, or just over half of what they pay under current law. Tax savings would be higher, in percentage terms, for middle-class families than for the wealthy, making the plan appear less of a rich man's bill than most G.O.P. tax programs.

No need to pity the wealthy, though. Take a family of four with $200,000 in annual income, $25,000 of which comes from profits on the sale of stock, real estate or other assets. This family would benefit not only from the income-tax cuts but from a Dole proposal to halve the tax rate on their capital gains--to 14%. Their total tax bill goes down less in percentage terms (21%), but much more in dollars ($8,735).

Dole would also repeal Clinton's 1993 tax increase on the Social Security receipts of well-to-do pensioners. And for a guy who pledged to simplify the tax code, Dole offered a plan with enough special breaks and incentives to keep accountants busy for years. So his notion of abolishing the Internal Revenue Service "as we know it" (a deliberate echo of Clinton's 1992 pledge on welfare) might take a while.

The real problems, though, come in figuring how to pay for this largess. To begin with, Dole is siding with supply-side economic theorists--whom he once derided--and their argument that tax cuts spur growth by giving consumers more money to spend and businessmen more to invest, thus creating additional tax revenues to help pay for the tax cuts. Dole is figuring that a quarter of the $551 billion in cuts can be recaptured this way. That's rather modest by the standards of earlier supply-siders, but still very iffy.

Even speeded-up growth, however, would leave a huge budget gap. How would Dole close it? By cutting spending even more drastically than the Republican Congress has already proposed. But he would make no extra reductions in Social Security, Medicare, Medicaid or defense. Those sacred items make up two-thirds of the budget. The remaining third would have to be slashed all the more savagely. And Dole is very vague about where those cuts might fall--intentionally, since he wants headlines to focus on tax savings rather than spending cuts. It is not unreasonable, however, to foresee a dismal scenario: spending cuts come nowhere near matching tax reductions; the deficit mushrooms; a panicked bond market raises interest rates; the higher rates cause economic growth to slow, reducing tax collections even more, and so on and on.

There is nothing inevitable about this, of course. But it would be a hair-raising gamble. In response to newspaper headlines asserting that he was "betting the farm" that his plan would succeed, Dole observed that he was in fact "betting the country." He meant to sound confident, but that may not be how his remarks resonate with the voters.

Again echoing the 1992 Clinton, Dole calls himself an agent of change and his opponent the defender of the status quo. But role reversal has another side. Clinton is pledging only minor tax cuts, to be offset by specific gains from other revenues or from spending cuts. And during his presidency, the deficit has fallen almost 60%: from $290 billion in fiscal 1992 to an expected $117 billion in the fiscal year that ends Sept. 30. A case could be made that the candidate who best represents the fiscally conservative, moderate Republican tradition is, believe it or not, Bill Clinton.

--Reported by John F. Dickerson and Adam Zagorin/Washington

With reporting by JOHN F. DICKERSON AND ADAM ZAGORIN/WASHINGTON