GOP’s Latest Tax Plan Hints at Scramble to Fix Economy

As a nervous Congress groped for a remedy for the ailing economy, Senate Republican Leader Trent Lott (R-Miss.) proposed Monday linking tax cuts for investors--a GOP favorite--with some form of payroll tax relief that has been endorsed by Democrats.

Although Democrats reacted coolly to the suggestion, the fact that Lott was open to such an idea provided a measure of how feverish the Republicans’ search for an economic stimulus plan has become.

A new round of tax cuts was just one of many ideas being kicked around as lawmakers, particularly Bush’s Republican allies, grappled with twin fiscal problems: an economic downturn and the dwindling budget surplus.

“Ideas are bouncing off the wall and ceiling,” said Doug Hattaway, spokesman for Senate Majority Leader Tom Daschle (D-S.D.).

It was not clear which ideas--if any--would become law, but it was clear that the worsening economic and budget outlook is coloring almost every issue before Congress.

This week, for example, House GOP leaders may postpone a debate on a costly farm bill because they worry the bill will be cast as a budget buster--and possibly go down to defeat.

Fear of a return to deficit spending hovered over negotiations between the parties regarding appropriations for education and defense. House Appropriations Committee aides said negotiators from the administration and both parties in Congress were trying to agree on a way to write appropriation bills that would increase education and defense spending without using surplus Social Security revenue. But aides from both parties conceded that some accounting gimmickry will probably be necessary.

What’s more, the Bush administration was negotiating with lawmakers pushing for another guarantee that Social Security surpluses not be used for other programs. Their bill would require across-the-board spending cuts if Congress overspends the surplus. Authors of the bill--Zell Miller (D-Ga.) and George Voinovich (R-Ohio)--postponed a news conference Monday to continue talks with the administration in hopes of winning the president’s support.

Congress Members See a Need to Act

The jockeying reflects a growing sense of urgency among members of Congress about the need to take some action on the economy. Republicans especially fear the wrath of voters in the 2002 elections if conditions do not improve soon.

The Congressional Budget Office recently projected that after setting aside Social Security’s roughly $160-billion surplus, the government would be slightly in the red for the fiscal year that ends Sept. 30.

Republican leaders huddled with Bush on Friday after the government reported a surge in unemployment, and budget officials privately acknowledged that the budget outlook is worse than they had publicly predicted. After the meeting, Bush promised action to turn the economy around, though he did not offer specifics.

Congressional Republicans have been pushing for a temporary cut, from 20% to 15%, in the tax rate on dividends and other capital gains, but Bush has been noncommittal.

In discussing that and other options with reporters Monday, Lott said he hoped the debate would soon turn away from the bitter partisanship that has reigned so far. “The good news is this is not an election year,” he said. “We ought to be able to come together.”

So far, there have been few signs of a political truce. Democrats have been insisting that the economic and budget problems were created by--and must be solved by--Bush and the Republicans.

Over the weekend, some Democrats indicated a new willingness to consider further tax cuts as part of an economic stimulus strategy. Senate Budget Committee Chairman Kent Conrad (D-N.D.) and Sen. John F. Kerry (D-Mass.) signaled support for the idea of providing additional tax relief for workers who did not benefit from the income tax cut approved earlier this year. They include the millions of workers who pay only Social Security and Medicare payroll taxes but do not earn enough to owe income taxes.

Expanding on his comments in an interview Monday, Conrad said he did not mean to endorse a direct cut in payroll taxes, because that would divert revenue from the Social Security and Medicare trust funds. Instead, he suggested that relief take the form of a credit that payroll taxpayers would receive as a check from the government if they owed no income taxes.

However, Conrad dismissed the idea Monday of linking payroll tax relief to a capital-gains tax cut. He argued that capital-gains tax cuts do nothing to put money quickly into the hands of consumers.

Concern About Using Retirement Funds

Although Republicans are anxious about the economy, some are even more concerned about the prospect that Congress will spend part of the Social Security surplus this year and next, violating the promise of both parties not to divert revenue from the retirement system to other programs.

More attention is being paid to legislation drafted by Voinovich and Miller that would make it harder for Congress to pass any bill that would result in spending Social Security surpluses. It also would set up a mechanism for cutting programs across the board if, after all 13 appropriation bills are passed, the total exceeded the non-Social Security surplus.

Another version was being drafted by House Republicans. However, it was not clear that Bush would embrace the idea, and proposals along those lines in the past have met with considerable resistance from many quarters in Congress.

Another front in the budget battle is the intensifying effort to wrap up work on 13 appropriation bills to keep the government running after the new fiscal year begins Oct. 1. The House has not yet taken up the two biggest and most contentious bills--one for defense, another for education and other social programs.

In a rare and quiet bipartisan effort, House and Senate staff from both parties have been meeting with administration officials to figure out how to write those bills without tapping the Social Security surplus. It’s a tight squeeze because Bush has requested $18.4 billion more for defense and Democrats have pressed for big increases in education spending.

Aides familiar with the talks said consensus had been reached that the total of all 13 appropriation bills would be $679 billion--the amount requested by Bush, including his $18.4-billion defense add-on.

But to fit in defense and education spending increases, aides said negotiators would have to agree on spending cuts in other areas and on accounting changes that would make it easier to say that spending was not reaching into Social Security reserves.

For example, budget writers could mandate that spending bills’ effect on the surplus be measured by the assumptions of administration budget analysts, who have been more optimistic than the analysts that Congress is supposed to rely on.