Kerry Offers Economic Proposal

Likely Democratic presidential candidate John F. Kerry offered an economic plan Tuesday that urges a sweeping retrenchment of President Bush’s $1.35-trillion, 10-year tax cut, but also relies heavily on new short-term tax breaks to stimulate the economy.

The plan by Kerry, who last month won a fourth Senate term in Massachusetts, seemed designed to both sharpen his differences with Bush and position him in the center of the emerging Democratic field.

Rather than emphasizing new spending, Kerry proposed to pump additional purchasing power into the economy by cutting taxes on businesses that create jobs and by temporarily eliminating the Social Security tax on the first $10,000 in workers’ earnings. He also promised as president to “take a hard look” at waste in the federal budget.

But he denounced the further cuts in income tax rates due in 2004 under the Bush tax plan -- reductions the administration may try to accelerate next year as part of its stimulus package.

“The new Bush tax cuts are unfair, unaffordable and unquestionably ineffective in growing our economy,” Kerry contended in an address to the City Club of Cleveland.

Kerry’s speech illustrated that the Bush tax cut should prove a key point of division between the parties in 2004 -- and among Democrats next year.

While Democratic congressional leaders have opposed efforts to challenge the tax cut -- mainly because many of their members from conservative states support it -- virtually every Democrat exploring the 2004 presidential race has now called for rolling back parts of the law.

A White House spokesman, previewing a GOP response likely to be heard often as the ’04 campaign gears up, said Kerry’s proposal amounted to raising taxes by denying Americans future tax breaks they now expect.

“There appear to be differences within the Democratic Party about how they want to go about raising taxes,” said White House spokesman Scott McClellan. “Once they resolve those differences, there will be plenty of time to contrast the Democratic approach with the president’s view that tax cuts encourage job creation and economic growth.”

Kerry, a Vietnam veteran who turns 59 next week, quickened the pace of the 2004 Democratic race last week when he announced that he would form an exploratory committee to begin organizing support for a presidential candidacy.

Outgoing Vermont Gov. Howard Dean has also said that he will seek the nomination. Former Vice President Al Gore and Rep. Richard A. Gephardt (D-Mo.) have indicated they will make their plans clear by early next month.

Sen. John Edwards (D-N.C.) has begun organizing a campaign staff, and Sen. Joseph I. Lieberman (D-Conn.), the Democrats’ vice presidential nominee in 2000, has said he will run if Gore does not. Outgoing Senate Majority Leader Tom Daschle (D-S.D.) also is a prospective candidate.

Kerry’s speech continued a flurry of policy addresses from the likely 2004 Democratic contenders. In part, the early start reflects the acceleration of the Democratic primary calendar. Under the party’s new rules, Iowa and New Hampshire hold the first nominating contests in January 2004, with other states following as early as Feb. 3.

With his speech, Kerry joined Gore, Lieberman, Dean and Edwards in urging a freeze on aspects of the Bush tax cut. Kerry argued that the tax cut would benefit mostly the wealthy and could be financed only by diverting taxes collected for Social Security and Medicare.

The Bush tax plan, which Kerry voted against last year, cut income tax rates across the board in 2001, and provided for further rate reductions in 2004 and 2006.

Though Kerry did not specify which elements of the Bush tax cut he would oppose, his press secretary, David Wade, said the senator would repeal the 2004 and 2006 reductions scheduled for the top three income-tax brackets. Through 2006, the top rate paid by the highest earners is scheduled to fall from 38.6% to 35%, the next rate from 35% to 33%, and the third from 30% to 28%.

Kerry’s plan is among the more aggressive assaults on the Bush plan; it would reduce future tax breaks for families earning about $113,000 a year or more, after deductions. By comparison, Edwards and Lieberman want to block further rate cuts in just the top two brackets, which would affect families earning $172,000 a year or more, after deductions.

Kerry’s freeze on the top three rates would save about $400 billion over the next decade, his staff said.

Kerry would maintain the scheduled cuts in the next bracket, from 27% to 25%, as well as an increase in the tax credit for parents with children, and relief targeting married couples.

With the savings from his proposal, Kerry said, he would fund an economic plan that leans heavily toward alternative tax cuts in the near term and spurring technological advance in the long run.

To invigorate the economy now, Kerry said, he would provide a tax credit to offset the $765 in Social Security and Medicare taxes workers pay on their first $10,000 in earnings; that would cost at least $100 billion over the next year. And he said he would further help “hard-working families” by increasing the minimum wage and expanding the earned income tax credit, which targets the working poor.

Kerry then proposed a series of tax cuts aimed at business, including a “job creation tax credit” for employers who hire new workers and the elimination of capital gains on investments held for five years in start-up companies developing “critical technologies,” such as alternative energy sources.

The new spending in Kerry’s stimulus proposal appeared modest: an extension of unemployment benefits and an unspecified increase in spending on infrastructure, especially high-speed rail and other transportation projects.

In contrast, when Gephardt offered a stimulus plan in October, he called for $75 billion in short-term tax cuts and $125 billion in spending on infrastructure, school construction, health care and aid to fiscally strapped states.