Kennedy Wants Tax Cut Slowed

Sen. Edward M. Kennedy (D-Mass.) on Wednesday proposed slowing down the tax cut passed last year and President Bush immediately rejected the idea, framing an issue expected to play a major role in this year’s congressional elections.

Kennedy, who last week joined Bush in a three-state tour celebrating a bipartisan agreement on education policy, is the most prominent Democrat to call for altering the 10-year, $1.35-trillion tax cut the White House touts as one of its signature achievements. Other leading Democrats, including Senate Majority Leader Tom Daschle of South Dakota, have intensified their criticism of the law but have stopped short of urging changes to it.

In a speech at the National Press Club, Kennedy argued that an escalating budget deficit demands that tax cuts aimed at the affluent be modified if high-priority social needs are to be met.

“Future additional tax breaks for the wealthy do not deserve higher priority than strengthening education, covering prescription drugs under Medicare, or protecting Social Security, or meeting other urgent national priorities,” he said.

Daschle and many other Democrats are fearful of the potential political damage of pushing for the changes advocated by Kennedy, and argue that it is Bush’s job to respond to the budget deficit. But Kennedy’s speech established a liberal Democratic alternative to Bush’s own effort to focus on domestic policy as both parties gear up for November elections in which control of the House and the Senate will be at stake.

Although Bush this week has continued to mention the cooperation he and Kennedy achieved to gain passage of the bill seeking to improve public schools, he quickly slammed the door concerning compromise in the tax arena.

“When the economy slows down, it makes sense to cut taxes, and that’s exactly what’s happened,” Bush said.

He equated a delay in imposing tax cuts with a tax increase, an argument other Republicans are sure to echo on the campaign trail.

“Raising taxes in the midst of a recession is wrong economic policy,” Bush said. “It would be a huge mistake. It’s bad for American workers. It will hurt when it comes to creating jobs.”

The tax cut was at the center of Bush’s economic policy during his first year in office and cleared Congress with a smattering of Democratic support.

Kennedy’s plan would delay $350 billion of the tax breaks.

Kennedy said families earning less than $130,000 a year and filing joint income tax returns would be unaffected, and that no one would pay a higher tax rate than currently required.

He proposed postponing future reductions in the top three income tax brackets--those at 31% and above. Under the new law, these income tax rates will be shaved by 1% this year, in 2004 and in 2006. Kennedy would hold off the cuts in 2004 and 2006.

In addition, he would retain the tax on estates of more than $4 million. Under the new law, the estate tax is to be gradually reduced and eliminated in 2010. But it could return a year later because the entire tax cut expires at the end of the decade unless Congress opts to renew it.

Kennedy said that, under his plan, wealthy taxpayers “will receive less of a tax reduction than they anticipated, but they still will be receiving billions of dollars in new tax breaks.”

Kennedy’s speech took on the tenor of a Democrat’s version of the State of the Union address, setting out an ambitious national agenda.

He called for an intense focus on education, health care and prescription drug costs, particularly for the elderly, presenting the domestic agenda as the counterpart to the military action in Afghanistan.

“We can and should support President Bush’s conduct of the war, and still ask the administration to join us in addressing the urgent needs of our people in areas like jobs, education, health care and equal rights,” he said.

Even as the White House sought to counter Kennedy, it also continued its efforts to lump Daschle with those who would scale back the tax cut. Administration officials have said at times that Daschle favored a tax increase--a course he pointedly did not advocate. At a Wednesday breakfast with reporters, Office of Management and Budget Director Mitchell E. Daniels Jr. recognized that Daschle had not called for a tax increase, but suggested that the Senate majority leader favored higher taxes.

In Daniels’ view, Kennedy said “the one thing that Sen. Daschle didn’t bring himself to say, that the Democratic position would be in favor of higher taxes. That’s an honest debate.”

Daniels said Kennedy’s proposal would do little or nothing to erase the federal budget deficit: “He makes it very explicit he wants to spend all the money.”

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Times staff writer Nick Anderson contributed to this report.