Tax Cut Fever Is Busting Out All Over Capitol Hill

In a rare and rapid convergence, Republicans and Democrats seem suddenly to agree that a tax cut is needed right now--far quicker than President Bush’s large but leisurely tax cut over 10 years--to goose the flagging economy.

But as a practical matter, tax experts say, it is difficult to give everyone an immediate tax cut in a way that gets substantial sums into people’s hands quickly.

The idea is simple enough, but logistical problems abound: Who exactly is the “everyone” who gets the tax cut? How is it to be delivered? A flat rebate? Changes in tax rates? A check in the mail? Reduced paycheck withholding?

And as a political matter, the growing clamor for an immediate economic stimulus is also complex for Bush. Quick action on a smaller tax cut could sap momentum from the rest of his tax plan, some Republicans fear. If Democrats burnish their credentials as tax-cutters by supporting a smaller, quicker tax cut, they may be emboldened to resist the bigger tax cut.

It is far from certain exactly what kind of tax cut will emerge from all the chatter on Capitol Hill, but one thing is crystal clear: The debate has changed dramatically in the face of growing concerns about the economy.

Even though many economists argue that cutting taxes is not the best way to stimulate the economy, swelling congressional support for the idea is a measure of the political pressure on lawmakers to show they are doing something in response to the tumult in the economy.

Until recently, Republicans focused on simply enacting Bush’s $1.6-trillion tax cut with relatively few changes. But Bush’s original plan was not supposed to take effect until 2002. Now the debate has shifted to the question of how the tax bill can be reconfigured to speed up its impact.

The possibilities and alternatives are proliferating like worms after a spring rain. Senate Republican leaders are proposing a $60-billion tax cut for 2001; Democrats have quickly embraced that idea, but spurned GOP plans to link the short-term stimulus to Bush’s $1.6-trillion tax package.

Sen. Joseph I. Lieberman (D-Conn.) got into the act Monday, proposing to send every working American a $300 check this year--a “dividend tax rebate that can give our economy and our national confidence the kick-start they need.”

The last time Congress did anything like that was in March 1975, a time of recession under President Ford. Congress responded with a one-shot, $12-billion refund of 1974 individual taxes, amounting to between $100 and $200 per taxpayer. It was processed as part of individual 1974 tax filings.

Congress will continue sorting through its tax cut options in the coming days as the House prepares to vote Wednesday and the Senate next week on a budget resolution that sets spending and tax targets for the coming year.

All the suspense is in the closely divided Senate, where GOP leaders are scrambling for enough votes to pass a resolution that makes room for a tax cut as large as Bush’s. Two moderate Republicans--James M. Jeffords of Vermont and Lincoln Chafee of Rhode Island--oppose the Bush tax cut as too big. One Democrat, Zell Miller of Georgia, has endorsed it; Republicans are hoping to win over some more moderate Democrats, such as Ben Nelson of Nebraska.

Even if the two parties can put aside their differences over the Bush tax cut and agree on a short-term tax cut to stimulate the economy, they face enormous questions about how to craft such a bill to maximize its economic impact.

“You’ve got a lot of decisions along the way,” said Clint Stretch of the accounting firm of DeLoitte & Touche. “These things have been talked about in the past and generally fallen of their own weight because of the complexity.”

One idea is to have some kind of tax rebate--a lump-sum payment that would be given to taxpayers as quickly as possible. The practical problem is making sure the checks actually arrive in the mail. The most recent address the Treasury Department has for taxpayers is on their 1999 tax returns, and millions of people will have moved or died since then.

Other Republicans, including Senate Majority Leader Trent Lott (R-Miss.), are pushing instead for enacting a retroactive cut in tax rates that would apply to the entire 2001 tax year. A rate cut would likely be implemented by having the Internal Revenue Service adjust withholding tables after the law was enacted, directing employers to withhold less from workers’ paychecks in the latter part of the year.

But that approach has problems of its own. It would take weeks for the IRS to issue new withholding tables. And it would spread the tax cut over several months, which some say would have less economic impact than sending taxpayers a lump sum.

Some lawmakers object to any approach that would affect only people who pay income taxes, but not poor people without jobs or workers who earn so little that they pay only payroll taxes. To reach the latter group, some have proposed a temporary suspension of Social Security and Medicare taxes that are withheld from all paychecks. But that “tax holiday” approach is politically problematic, a top GOP strategist said, because of fear that Republicans would be attacked for draining resources from Social Security and Medicare.

Democrats have come forth with a wide variety of proposals; Lieberman’s rebate idea is just the latest. Earlier, Senate Minority Leader Tom Daschle (D-S.D.) proposed immediately reducing the lowest income tax rate from 15% to 10%. That would provide a tax cut of about $600 per couple, Daschle estimates. Sen. Max Baucus (D-Mont.) supports a three-year, $200-billion tax cut that would include $70 billion in the first year.

But Democrats also vehemently oppose Republican plans to link an immediate $60-billion tax cut to Bush’s proposal to slash income tax rates.

“We have agreement on the overall size of a tax stimulus package,” said Sen. Kent Conrad (D-N.D.). “Let’s not hold this stimulus package hostage to a 10-year budget plan.”