National Review: An Al Gore vulnerability

Mr. Kudlow, an NR contributing editor, is chief economist at American Skandia Life Assurance.

Forget fundraising scandals and creative autobiography: Al Gore's chief vulnerability may be taxes. As a senator, he voted in favor of President Carter's windfall-profits energy tax and against President Reagan's supply-side tax cuts. He voted repeatedly against a lower capital-gains tax and any IRA savings expansion. He also opposed the tax-limiting version of the balanced- budget amendment.

Nothing has changed. In a recent talk with a group of black newspaper publishers, Gore declared, "We don't need more Republican 'retronomics.'" Attacking the GOP Congress's plan to lower taxes by roughly $800 billion over the next ten years, Gore decried "open-ended, extremely risky tax schemes-just sort of like a roulette table." In fact, he added, "we've tried this kind of budget before and it nearly wrecked the United States. It drove our economy into the ditch."

Some ditch. Reagan's marginal tax rate reduction revived a lifeless economy, creating 18 million new jobs with close to a 4 percent yearly economic-growth rate in the 1980s. As inflation melted down and wage, price, and energy controls were eliminated, reduced interest rates spawned the technological revolution in semi-conductor chips, cellular communications, and personal computers that remains the backbone of our economy.

Gore, of course, has a different version of history: "When we took over almost seven years ago now, this country was in deep trouble." This is familiar White House pap. But the Bush economy was recovering nicely in 1992, following the shortest and shallowest recession in the post-war era. The real growth rate was 3.6 percent.

"We turned that around," according to Gore, "and, boy, it was tough." Actually, the Clinton-Gore tax hike of 1993 slowed the economy to a 2.6 percent growth rate over the first three years of the administration. In 1994 Treasury bond rates ballooned from 5.75 percent to 8.25, making for the worst bond market in forty years. The dollar dropped to a lowly 80 yen, and 70 percent of the stocks listed on the New York Exchange dropped more than 20 percent. Economic confidence wasn't restored until the election of a Republican Congress, when interest rates began their long decline, the stock market rebounded, and the dollar rallied.

Gore now defends a White House budget that contains 75 tax hikes adding up to $172 billion. These include seven increases on the death tax and $9 billion worth of higher airline-ticket taxes. Gore also wants to preserve the new FCC tax on phone companies. This is supposedly to wire public-school classrooms onto the Internet, but in fact the revenues merely finance general federal spending while the cost is passed along to consumers.

Gore wants to keep socking it to the Internet too. He led the administration's unsuccessful fight to block the bill establishing a three-year moratorium on Internet taxes, legislation whose passage sparked the phenomenal Internet stock- market rally last fall and made possible record electronic-commerce sales during the holiday season.

There are now 79 million adults who are regular Net users, and they are disposed to Republican-oriented attitudes and behavior. A recent Wired magazine poll shows that 56 percent of Internet users have "a lot of confidence" in the free-market system as opposed to just 34 percent of those not connected. Forty- four percent of regular Internet users are Republican and 30 percent are Democratic, while non-users are 38 percent Democratic and only 30 percent Republican.

The new Internet class also overlaps with the 125 million-strong investor class. Sixty-three percent of regular Internet users own stocks, bonds, and/or mutual funds. Ten and a half million investors now trade stocks and bonds and buy mutual funds online. All sorts of other business takes place online as well: Within 18 months, 50 percent of all retail trading by individuals will occur in cyberspace. Republicans absolutely must connect with the new group of web surfers/investors. They should support a permanent moratorium on new taxes for cyberspace access and sales, creating a wedge between this burgeoning constituency and the supposedly tech-friendly Gore.

Gore supports lower taxes only in the form of federally targeted tax credits for education and kids. He brags that, as a result, middle-class tax burdens have fallen. But this ignores the Social Security payroll tax burden: Seventy percent of wage earners pay more in payroll taxes than in income taxes. In fact, the combined payment for FICA and income taxes as a share of total wages and salaries has grown from 22.5 percent to 26.5 over the past four years.

This includes substantial tax-bracket creep, as successful workers have gone from the 15 percent tax bracket to the 28 percent threshold. It also includes this year's hike in wages subject to the Social Security tax from $68,000 to $72,000. Republicans should try to separate the overtaxed middle class from Gore by proposing to add families making between $25,000 and $72,000 to the 15 percent tax bracket and to eliminate the 28 percent bracket altogether.

What Gore offers the 21st century is essentially a re-run of the old Mondale/Dukakis fiscal liberalism. It was unpalatable the first time around and is likely to be more so in the cyber age. Gore may think he invented the Internet, but it certainly isn't a boon to his politics.