Democrats Enter Tax Break Battle

Times Staff Writer

WASHINGTON -- The White House soon will be trolling for Democratic support for the sweeping $600-billion economic stimulus initiative President Bush details today, but building a bipartisan coalition likely will be harder than two years ago when dozens of Democrats backed Bush's initial tax cut plan.

House Democratic leaders, chastened by criticism that they have been too tepid in opposing past Bush initiatives, Monday outlined an alternative stimulus package that would be less expensive and more targeted to the middle class.

The plan has little chance of becoming law, given that the GOP controls both the House and Senate. But its unveiling signals determination among Democrats to take a more combative stand against a White House plan they see as a sop to the rich and an overpriced drain on the government's deficit-ridden budget.

Democrats are particularly vociferous in their opposition to the centerpiece of Bush's plan, the elimination of taxes on dividend income -- a measure critics say would not give a quick lift to the economy.

"We stimulate the job market; the president stimulates the stock market," said Rep. Robert Menendez (D-N.J.) as Democratic leaders discussed their $136-billion alternative. It includes tax rebates, extended unemployment insurance and aid to financially strapped states.

Bush's ability to reach across the aisle for votes for his new plan has been hampered by changes in the political and economic environment in the last two years. With budget surpluses giving way to deficits and possible war with Iraq looming, even moderate Democrats who have supported Bush's economic policies in the past are cool to his latest tax relief agenda.

"A $600-billion package is a nonstarter," said Dianne Feinstein of California, one of 12 Democratic senators who supported the $1.35-trillion, 10-year tax cut that became law in 2001.

In a clear sign of the changed times, Feinstein later this week will introduce legislation to roll back a part of the 2001 law -- cuts in income tax rates for the wealthiest.

Rep. Calvin M. Dooley of Visalia, one of 28 House Democrats who backed Bush's 2001 tax cut, said Monday, "It certainly would be very difficult for me to vote for" the new plan. He added: "I think it is going to be difficult to find common ground."

It will be particularly important for Bush to line up some Democratic support in the narrowly divided Senate. Although it is relatively easy to pass legislation through the House on a straight party-line vote, bills have a harder time getting through the Senate without some bipartisan support. Although Republicans will control the Senate with 51 votes, it usually takes support from 60 senators to clear a bill.

It was early in his administration when some Democrats were willing to back Bush's first tax cut, and he was aided by the residual goodwill of the honeymoon period most presidents enjoy with Congress. Now, however, prospects for bipartisanship are complicated by the onset of the 2004 presidential election season.

Congress -- especially the Senate -- is bustling with Democrats who are preparing to run against Bush. Other Democrats will be less inclined to deliver Bush a big victory as he starts to build the case for his reelection.

Also, Democrats in 2001 felt comfortable supporting a big tax cut at a time when the budget was awash in surpluses. But now they are watching growing deficits -- and the prospect of a costly war with Iraq -- squeeze resources for their favored initiatives in education, health and other social programs.

Senate Finance Chairman Charles E. Grassley (R-Iowa) said Monday he still believed some Democrats could be persuaded to back the new Bush initiative because there is bipartisan concern about the economy. But to do so, he said, the White House needs to be flexible about the details.

"I think the White House put together what they consider a perfect package, but I would assume that they know the realities of the U.S. Senate," said Grassley.

The proposal House Democrats laid out Monday demonstrated just how far apart the two parties are at the outset of this debate.

They crafted it to provide $136 billion in tax relief and economic aid all in 2003, while Bush's plan spreads $600 billion over 10 years. Democrats said it was more important to give a quick, one-time boost to the economy and avoid a bigger, long-term drain on the deficit.

"This is a real stimulus that is fair, that is fast-acting, that is fiscally responsible," said House Democratic leader Nancy Pelosi of San Francisco.

The plan proposes tax rebates of $300 per person or $600 per working couple in 2003, money that would go even to people who did not earn enough to pay income taxes.

Other elements of the Democratic plan would:

* Provide a 26-week extension of unemployment benefits for people who have been out of work so long their benefits have lapsed. It would also provide benefits retroactively to people who lost the payments when an earlier, temporary program expired at the end of December. Republicans have supported much shorter extensions of benefits.

* Provide about $32 billion in tax breaks for businesses by allowing them to write off more of their investments in new equipment and other capital expenditures.

* Provide $31 billion in aid to financially strapped states and localities for spending on homeland security, highways, Medicaid and additional aid to the unemployed.


Times staff writer Richard Simon contributed to this report.

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