Stock Market Motivates Senate GOP to Pursue More, Faster Tax Relief

With a nervous eye on the swooning economy, top Senate Republicans abruptly changed course Thursday and decided to push for an immediate $60-billion tax cut this year--in addition to the $1.6-trillion tax cut President Bush has proposed for the next 10 years.

The Senate GOP leaders also decided to speed legislative action on both their new tax cut proposal and Bush’s plan.

“We are convinced . . . that this must be done as quickly as possible for the economy,” said Senate Budget Committee Chairman Pete V. Domenici (R-N.M.) after meeting with his GOP colleagues. “I’m firmly convinced this $60-billion [proposal] will be a big sign that we care.”

Domenici’s initiative, which will be included in broad outlines in a budget the Senate will debate in early April, marks a significant increase and acceleration in the tax cuts Republicans have been contemplating for this year. A House committee approved a budget Wednesday that made room for less than $6 billion in tax cuts in 2001.

Although Bush’s original tax plan would not take effect until 2002, he has said he would support congressional efforts to provide some relief in 2001. A Domenici aide said the $60-billion proposal was hatched in recent discussions with Treasury Secretary Paul H. O’Neill.

Whether the proposal can pass the Senate, which is evenly divided between the political parties, remains uncertain. Top Democrats recently have been warming to the idea of providing an immediate tax cut to stimulate the economy. But Domenici wants to add onto a $1.6-trillion tax cut that many Democrats already view as too large and too skewed toward the rich.

The movement among Senate Republicans came as the House GOP continued its drive to push Bush’s plan through Congress piece by piece--and to expand it as it goes along. On a 23-16 party-line vote, the House Ways and Means Committee on Thursday approved legislation that would give a far bigger tax cut for married couples than Bush has proposed. The House bill also would speed up Bush’s proposed increase in the tax credit for families with children.

Earlier this month, the House approved a bill that contained the centerpiece of Bush’s tax cut plan: an across-the-board reduction in income tax rates. This bill would cut taxes by $1 trillion over 10 years, with a small portion of the rate cut made retroactive to apply to 2001.

While the House has been acting quickly on Bush’s plan, Senate Republicans have moved more cautiously. For weeks they have planned to move a single tax package and predicted it would not clear Congress until summer.

That strategy has been shaken, in part, by continuing volatility in the stock market and signs that the economy is running out of steam. Republicans also have been facing increasingly aggressive arguments from Democrats that Bush, with his 10-year tax cut that provides most of its relief in its latter stages, is failing to address what some see as an immediate economic crisis.

“We’re fiddling,” Rep. Robert T. Matsui (D-Sacramento) said during Thursday’s Ways and Means Committee debate. “Rome is burning. . . . This tax cut will have no impact on the state of our economy.”

Senate Democrats have proposed tax cut alternatives that would be smaller than Bush’s overall plan but quicker in its effect. Senate Majority Leader Tom Daschle (D-S.D.) has endorsed an idea to make Bush’s proposal to drop the lowest income tax rate from 15% to 10% effective immediately--not over five years, as the president has proposed. That would amount to about $450 billion in tax relief over 10 years, including $20 billion in the first year.

The clamor to provide tax cuts that take effect sooner has come despite skepticism among many economists and lawmakers that such reductions in any form are an effective way to stimulate the economy.

“It’s a drop in an ever-expanding ocean of problems,” said Rep. Sander M. Levin (D-Mich.).

Even House Ways and Means Committee Chairman William M. Thomas (R-Bakersfield) acknowledged the immediate effect of the tax bills moving through his committee would be limited, noting that the stock market dipped dramatically even after the Federal Reserve took the far more dramatic step of reducing interest rates earlier this week.

The budget debate is expected to begin in the Senate the first week in April, when Domenici brings up the annual budget resolution, which sets broad outlines for spending and taxes.

In addition to making room for Bush’s $1.6-trillion tax cut, the resolution would authorize using $60 billion of the expected $93-billion surplus in 2001 for more tax cuts.

If the Senate approves this resolution, its committees then would be required to move within weeks on a tax bill that includes the $60 billion in tax relief for 2001, along with the Bush plan to reduce income tax rates.

A second tax bill would be drafted later to include other elements of the Bush plan, such as tax relief for married couples and repeal of the estate tax.