Lieberman Urges Tax Cut Rollback

Sen. Joseph I. Lieberman (D-Conn.) on Monday called for rolling back major portions of President Bush’s tax cut, the first prominent Democrat considering a 2004 presidential race to challenge the centerpiece of the administration’s domestic agenda.

In a speech to the Detroit Economic Club, Lieberman said that if the federal deficit did not improve by next year, Congress should suspend three elements of the tax plan--including the next two scheduled reductions of the top income tax rate.

“We must be prepared to postpone the most expensive and least progressive parts of the Bush tax cut that go into effect in 2004, 2006 and thereafter,” Lieberman declared.

Lieberman also offered proposals to slow the growth in federal spending and called for making permanent the tax reductions Americans already have received under the Bush plan.

But his direct assault on the next stages of the tax cut moved him beyond the other best-known potential contenders for the 2004 Democratic nomination, all of whom have criticized the Bush plan without directly urging its repeal. Among Democrats exploring a presidential campaign, only Vermont Gov. Howard Dean, who has little name recognition outside his own state, previously has urged that the tax cut be significantly altered.

Republicans immediately portrayed Lieberman’s speech as a signal that he wanted to raise taxes. “The president’s leadership and tax cut is much of the reason why the recession was as short-lived as it was, and raising taxes would be the worst thing to do as our economy is recovering,” said White House spokeswoman Anne Womack.

Rates Wouldn’t Rise

Anticipating the criticism, Lieberman said that under his proposal, 98% of Americans--all but families earning $180,000 a year or more--would receive all of the tax cut they were promised in last year’s bill, and no one would pay higher income tax rates than they do today.

“Read my lips: Keeping current tax rates is not a tax increase,” he said, adapting the famous “no new taxes” pledge then-Vice President George Bush, the father of the current president, made during the 1988 campaign for the White House.

Lieberman’s speech isn’t likely to change this year’s fiscal debate in Congress, where Democratic leaders have shown little inclination to challenge the Bush plan. But it suggests that attitudes toward the tax cut could be a critical dividing line in the battle for the party’s 2004 presidential nod.

Lieberman, Al Gore’s running mate in 2000, has been giving speeches around the country as he eyes a 2004 candidacy. But he has said he will not run if Gore does.

While the other leading Democrats exploring the race--who include Gore, House Minority Leader Richard A. Gephardt of Missouri and Sens. John F. Kerry of Massachusetts and John Edwards of North Carolina--have repeatedly portrayed the tax cut as a danger to long-term growth and Washington’s fiscal health, none have offered specific proposals to reduce it.

Dean has called for canceling all further rate reductions promised in the law.

Lieberman said Monday that if the deficit projections don’t improve by next year, Congress should save $1 trillion over the next two decades by rolling back three aspects of the Bush plan. Lieberman said he would:

* Eliminate future reductions scheduled to drop the top income tax rate from the current 38.6% to 35% and then to 33%;

* Abandon the repeal of the estate tax approved in the legislation, and instead provide more-limited tax relief for inheritances.

* Repeal provisions meant to make the personal exemptions and itemized deductions more valuable for upper-income taxpayers.

‘Targeted Cuts’

Lieberman said he would use the proceeds for “targeted” tax cuts, more spending in areas such as education and homeland defense and increased reduction in the national debt, which aides said would receive “the bulk” of the funds.

To constrain government spending, Lieberman said he would support a cap on its growth, “perhaps at the rate of inflation.” He also said he would back a commission proposed by Sen. John McCain (R-Ariz.) to cut corporate subsidies and urged Congress to make “tough choices” on defense.

In his emphasis on spending restraint and debt reduction, Lieberman sought to differentiate himself from more liberal critics of the Bush tax cut, such as Sen. Edward M. Kennedy (D-Mass.).

The tax cut law is due to expire Dec. 31, 2010, and Bush in several recent speeches has sought to pressure Congress to make it permanent. The GOP-run House last month approved legislation that would do that, but the measure is expected to languish in the Democrat-run Senate.