Tax Debate: Read My Lip Service

Read my lips. Presidential candidates often make tax promises they can't keep.

Democratic challenger Sen. John Kerry has looked directly into television cameras and told a national audience that if elected he would raise income taxes only on Americans making more than $200,000. He's also vowed to implement new tax cuts for 98% of U.S. families, while adding a host of social benefits and reducing the nation's record budget deficit.

President George W. Bush, meanwhile, has pushed to make permanent the major but temporary tax cuts from his first term -- on earnings, dividends and capital gains -- and to eliminate the estate, or inheritance, tax altogether. He has said he would hack away at the deficit as well and explore the idea of a simpler, streamlined tax code.

How seriously should taxpayers and investors view these election pledges?

"You have to dismiss a lot of it as rhetoric," said Bernard Baumohl, former Time magazine senior economics reporter, director of the Economic Outlook Group and author of the new book The Secrets of Economic Indicators. "It just doesn't work like that in the real world."

Though the two major candidates' tax policies may be very different, whoever wins the election could be forced to abandon election tax promises posthaste, according to economists and tax experts. Keeping current tax cuts and adding new ones could meet strong resistance from Congress in the face of federal deficits.

The federal budget deficit hit its second record high -- in dollar terms -- under the Bush administration at $415 billion for fiscal year 2004, according to the Economic Policy Institute, an independent, nonprofit, nonpartisan think tank in Washington, D.C.

Bush inherited a record $230 billion surplus for the year 2000 from the Clinton administration. But the surplus turned to red ink as Bush grappled with a recession, the 9/11 terrorist attacks and the war in Iraq, and sought to stimulate the economy with sweeping income tax cuts.