Kemp Assails Tax Withholding Change as a ‘Gimmick’ : Economy: His strong criticism of fiscal plan breaks ranks with the Administration. He later says comment was ‘less than artful.’

Housing and Urban Development Secretary Jack Kemp broke ranks with the Bush Administration on a central portion of the President’s economic recovery plan Saturday, calling the proposal to change federal tax withholding laws a “gimmick.”

Kemp, a leading economic conservative in the Bush Cabinet, leveled surprisingly strong criticism at the President for his decision to allow taxpayers to reduce the amount of income tax withheld from their paychecks.

The reductions, which would be optional and would subsequently lower the amount of a wage-earner’s year-end federal refund, will provide each taxpayer with an average of $1 a day in increased disposable income.

“Clearly the withholding idea is a gimmick,” Kemp said in a television interview. “Frankly, I cannot sit here . . . and retain my credibility and say that allowing people another $30 a month is going to spur economic recovery. It isn’t.”

Kemp later issued a statement seeking to clarify his remarks, saying that “my choice of the word ‘gimmick’ to describe the changes in the tax withholding tables was less than artful.”

At the White House, spokesman Roman Popadiuk said that “the President’s programs are very real and very substantive.” Otherwise, Popadiuk said: “I can only say that I have no comment.”

When President Bush unveiled his economic plan in Tuesday night’s State of the Union address, Republicans characterized the withholding reduction as a major part of it. Bush defended the withholding change Thursday, saying it could inject $25 billion into the economy.

“I think that would give the economy a jolt,” Bush said.

Economists and other analysts have questioned whether the President’s election-year economic plan goes far enough in addressing the fundamental causes of the current recession. But Kemp’s remarks were the first time that a member of the Administration’s inner circle on economic matters has criticized the plan. Last week, Kemp toured New Hampshire acting as a surrogate campaigner for Bush in his reelection bid.

“I think the American people understand that the President is taking action,” Kemp said on CNN’s “Evans and Novak Show.” “I know that they liked the drawing the line in the sand on March 20 (the deadline that Bush gave Congress to approve his larger economic plan).”

But in describing the withholding proposal and some of the planned tax credits as “gimmicks,” Kemp said he had fought unsuccessfully for an immediate reduction in the capital gains tax as the primary way to stimulate the economy.

“There’s only one thing that will get this economy going again and . . . that is an immediate cut in the capital gains rate to 15% or eliminating it altogether,” said Kemp, who is widely regarded as a potential Republican presidential candidate in 1996.

As secretary of Housing and Urban Development, Kemp praised Bush’s plans to grant tax incentives to first-time home buyers and to allow the use of individual retirement account funds for medical and educational expenses. The President’s budget also included increases for some innovative HUD programs to stimulate homeownership by public housing tenants.

But Kemp said the Administration had not adopted two of his major strategies--cutting payroll taxes by 15% to stimulate job growth and eliminating capital gains taxes in inner cities to foster business revivals.

White House insiders have acknowledged that Kemp clashed with Richard G. Darman, the Administration’s budget chief, during debates on how far the President’s economic strategy should go. Kemp declined to discuss the conflict Saturday, saying only that the Cabinet was not unanimous about how to turn the economy around.