Before budget fight, Bush puts up his fists on taxes

As Congress prepares for a period of intense work on the federal budget, President Bush on Wednesday portrayed the coming political fight as a philosophical conflict between tax-friendly Democrats and Republicans seeking to protect Americans’ wallets.

Using blunt language, the president told an organization of conservative state legislators that the Democrats’ priorities would produce huge tax increases -- a reference to Democratic opposition to extending the 2001 and 2003 tax cuts that are central to the administration’s economic program. Parts of the tax cuts are scheduled to expire in coming years.

The Office of Management and Budget says the tax cuts expiring in 2010, the first year of significant impact, are worth $159 billion for that year. And those cuts, if extended through 2017, are valued at $1.7 trillion.

Addressing a convention of the American Legislative Exchange Council, which gave him several standing ovations, Bush said the tax cuts were saving average taxpayers $2,200 a year.

“The fundamental question facing this Congress is ‘Will they be wise enough to keep taxes low?’ ” Bush said.

At the heart of Bush’s approach is this argument: Low taxes produce economic growth, and the strengthened economy produces increased tax revenue -- $167 billion more in tax revenue this year than last, he said.

So, he argued, “the best way to balance this budget is to keep the economy strong by letting you keep your money, and being wise about how we spend your money in Washington, D.C.”

Last week, however, the Congressional Budget Office reported that whatever extra economic activity the tax cuts created, it was not nearly enough to overcome the effect of the lower tax rates.

Altogether, the CBO estimated that without the cuts, tax revenue would have been $165 billion greater in 2007.

Linking the tax picture with Democrats’ spending priorities, Bush said: “Spending promises out of the nation’s capital have a way of shrinking American wallets in the heartland, because you’ve got to figure out how to pay for that spending increase. So it’s no surprise that their budget framework includes the largest tax increase in American history.”

Bush cited the expansion of the child tax credit, from $500 per child to $1,000, in his earlier tax plan. Its expiration, he said, would mean that the tax liability of a family of four would go up $1,800 a year.

He added: “The bunch now running Congress want to return to the tax-and-spend policies of the past that did not work then and will not work in the future. And that’s why I plan on using my veto to keep your taxes low.”

Bush also called on Congress to send him individual appropriations measures, rather than lumping them into one huge bill just before the fiscal year ends Sept. 30 -- a situation that he said makes it more difficult for him to veto measures that go beyond his priorities for a specific department.

Of the 10 appropriations bills passed by the House so far, Bush has threatened to veto seven for spending reasons and two for policy disputes. He has also threatened to veto the one bill passed by the Senate so far.

As the August recess nears, he urged Congress to pass the Defense Department spending bill, providing funds for troops in Iraq, before legislators leave town.

“There’s time to do it. I’ll hang around if they want me to,” said Bush, who is himself planning to get out of Washington, with visits to his family’s summer home in Kennebunkport, Maine, and his ranch in Crawford, Texas.

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james.gerstenzang@latimes.com

Times staff writer Joel Havemann in Washington contributed to this report.