More Tax Cuts on Bush Agenda

Buoyed by the midterm elections -- and with an eye on the next campaign -- President Bush and GOP congressional officials plan to use their new clout to push for early action on legislation to cut taxes and promote economic growth.

Some analysts question whether such measures are needed to boost an economy that shows signs of recovering. But the Bush administration wants to plow ahead -- and fast.

The White House has its political antennas tuned as much to the economy of November 2004 as of January 2003, Republicans close to the administration say. At the least, Bush and his aides want to ensure that he cannot be accused of benign neglect toward the economy -- a criticism that helped topple his father’s administration in 1992.

“I don’t think there’s a huge clamor” for an economic growth package, said a senior House Republican leadership aide. “But they are not doing it for two months from now; they are doing it for two years from now.”

Among the options under review are proposals that speed up scheduled reductions in income tax rates, boost the child tax credit from $600 to $1,000 and cut taxes on dividends from investments.

Even though Congress doesn’t return until January, White House officials are moving aggressively to lay the groundwork for action early next year.

Bush’s chief economic advisor, Lawrence Lindsey, met last week with senior GOP congressional aides to strategize. Representatives of major business groups went to the White House on Tuesday to discuss tax cuts and the economy with Lindsey and Bush’s chief political advisor, Karl Rove. Bush’s economic advisors gave him options to review over the holiday weekend at his ranch near Crawford, Texas, GOP sources said.

The momentum behind new economic measures is one of the most vivid examples of how Washington’s policy landscape has been transformed by the 2002 elections. With Republicans grabbing control of the Senate and expanding their House majority, they can contemplate passing tax cuts that were unthinkable as long as Democrats controlled the Senate.

“That’s one thing you can bet on in 2003: There will be more tax relief,” said Mark Isakowitz, a lobbyist with close ties to the GOP.

Other White House-backed economic initiatives include a renewed push to make permanent the 2001 tax cut -- a $1.35-trillion measure that expires at the end of 2010.

Bush spotlighted that issue as he barnstormed for GOP candidates this fall.

But many economists -- including Federal Reserve Chairman Alan Greenspan -- argue that such a change would do little to stimulate the economy in the short term.

The administration also is expected to develop a proposal to fundamentally overhaul the tax code. But congressional action is far less likely on that front.

“This election solidified the previous tax cut, and we can argue we have a mandate that legitimizes making [it] permanent,” said Grover Norquist, president of Americans for Tax Reform, a conservative lobbying group. “We did not ask for [a mandate] or get one in terms of fundamental tax reform.”

Proposals to spur the economy are gathering steam despite some positive economic indicators.

On Tuesday, the Commerce Department reported that the economy grew at a surprisingly strong rate in the third quarter of 2002. The Conference Board recently reported that consumer confidence was up in November.

New orders for durable goods rose 2.8% in October, after falling for two previous months. Jerry Jasinowski, president of the National Assn. of Manufacturers, called that report “evidence that the manufacturing recovery is getting back on track.”

But other indicators -- such as the rocky stock market -- remain troublesome, and many Republicans worry that the recovery is too slow and unsteady.

They also are concerned about public perceptions. In an October CNN/Gallup/USA Today poll, 51% of those surveyed said they believed the economy was getting worse; 71% rated economic conditions as poor or fair.

Against that backdrop, Republicans are wary of letting the economy muddle along -- especially given the experience of Bush’s father.

“The only thing that can derail George W. Bush’s success is a recession,” said Steve Moore, head of the Club for Growth, an anti-tax advocacy group. “It makes sense politically and economically to take out some anti-recession insurance.”

Tax cut proposals still face formidable hurdles in the Senate, where Democrats retain the power to block bills by filibuster. And many Democrats view the party’s election losses as a sign they need to be more aggressive in challenging Bush’s economic policies.

“We’re happy to support short-term stimulative tax cuts; we’re not as enamored of permanent tax cuts that mainly benefit the wealthy,” a senior Senate Democratic aide said.

But Republicans are aiming to craft legislation in ways that will attract enough Democratic votes to break a filibuster. For example, they are considering provisions to temporarily suspend payroll taxes -- a policy that appeals to Democrats because it provides relief to working-class people who benefit less from income tax cuts.

Reaching consensus about what to put in a bill is a challenge that Republicans did not face in 2001, when their script was written for them. They pushed through, largely intact, the tax proposal Bush had campaigned on.

Now, in contrast, Bush and the GOP are writing tax policy on a blank sheet of paper.

Bush has made no decision yet about the size of the package -- and how it fits in with other administration priorities, such as providing a prescription drug benefit under Medicare, the cost of a potential war against Iraq and holding down the budget deficit.

A senior Senate Republican aide predicted the package would be in the range of $100 billion to $150 billion over 10 years -- a fraction of the 2001 tax cut.

A key policy question is the balance between tax breaks for businesses and individuals.

Some analysts argue that individual tax cuts to boost consumption are more important, because consumer spending has been helping to shore up the economy.

Others argue that the biggest problem with the economy is insufficient business investment, and they argue for new tax incentives to change that.

Republican strategists say the package is likely to be more heavily weighted to individual breaks -- in part because the political climate, in the wake of the recent business scandals, is more favorable to that.

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Tax Cut Possibilities

Among the options being discussed to cut taxes and promote economic growth:

* Accelerated income tax cuts: Republicans are considering faster implementation of the income tax rate cuts called for by the 2001 law. Several Republicans want to put more money in taxpayers’ pockets by having the full cuts take effect in 2003, rather than being phased in through 2006.

* Family tax breaks: Provisions in the 2001 law to ease the tax code’s so-called marriage penalty, in which some couples pay more than if they filed as individuals, have not taken effect. Also, the child tax credit is scheduled to rise in stages from $600 to $1,000 in 2010. Republicans believe a bill to make those tax cuts effective in 2003 would be politically difficult for Democrats to resist.

* Payroll tax relief: Some Republicans -- and many Democrats -- support temporary suspension of the Social Security payroll tax. But skeptics warn that such a change is counterproductive at a time when Congress should be trying to shore up Social Security, not drain it of revenues.

* Tax break on dividends: There is growing GOP interest in easing what critics call the “double taxation” of dividends, which occurs when businesses pay taxes on their profits, and stockholders pay income tax on the same money when they receive it as dividends. Treasury Secretary Paul H. O’Neill is a leading supporter of eliminating one of those taxes.

* Investor tax breaks: House Republicans may revive an effort that stalled last year to provide new tax incentives to individual investors: an increase in the annual contributions to individual retirement accounts and 401(k) retirement plans, and an increase in the amount of investment losses that can be written off.