Bush Hints He Can Be Flexible on Tax Cuts

Times Staff Writer

President Bush used his State of the Union address Tuesday to stump for a tax-cut-heavy "growth and jobs package" that has encountered tough going even before officially arriving on Capitol Hill.

Bush hinted -- but only hinted -- that he might accept a modest compromise, suggesting he will only ask Congress to make the income tax rate cuts from his already enacted $1.35-trillion tax package permanent, rather than seek permanent status for all of the package's elements, including estate tax repeal.

As matters now stand, the cuts, approved in 2001, will expire at the end of the decade.

But otherwise the president stuck closely to his by-now familiar playbook, asserting that the economy is not growing fast enough to employ everyone who wants a job and that a new round of tax cuts is the way to get it going.

"Jobs are created when the economy grows," Bush told a joint session of Congress.

"The economy grows when Americans have more money to spend and invest; and the best, fairest way to make sure Americans have that money is not to tax it away in the first place."

Bush unveiled his 10-year, $674-billion growth package earlier this month. The measure's centerpiece is a $364-billion cut in the tax on stock dividends. It also includes a speed-up of rate cuts and other elements of the 2001 package that are not scheduled to take effect until later in the decade.

Bush's focus on tax cuts, during a speech largely devoted to the U.S. confrontation with Iraq, prompted a predictable response from Democrats.

"The president just doesn't get it," said presidential hopeful Sen. John Edwards (D-N.C.). "Giving tax cuts to the very wealthiest Americans should not take priority over the real economic, health-care and security concerns facing regular people."

"President Bush wants to give a massive tax break to the wealthy," charged Rep. Charles B. Rangel (D-N.Y.), the ranking member on the tax-writing House Ways and Means Committee.

Treasury officials said late Tuesday that the administration's budget for next fiscal year will call for making all of the 2001 tax cuts permanent.

But both liberal and conservative observers said that Bush's exclusive focus on the income tax portion of the measure in his speech suggested the president may be open to compromise.

"It was interesting he didn't say anything about the estate tax repeal, which is a real hot-button issue for the conservative base," said Leonard Burman, a Treasury tax expert in the Clinton administration and co-director of the nonprofit Tax Policy Center in Washington.

"He may very well have decided that half a loaf is better than none," said William Niskanen, chairman of the libertarian Cato Institute.

Bush's new proposal for a dividend tax cut has garnered only tepid support so far from corporate leaders, and suffered political blows this week when Federal Reserve chairman Alan Greenspan and Ways and Means Committee Chairman Rep. Bill Thomas (R-Bakersfield) suggested that they have doubts about the measure.

But the president brushed past such problems in reiterating his support for an end to what he says is the double taxation of dividends.

"It is fair to tax a company's profits," he said. "It is not fair to again tax the shareholder on the same profits."

Bush sought to portray the dividend tax cut as especially beneficial to seniors, who are far and away the largest owners of dividend-paying stocks.

"To help the nearly 10 million seniors who receive dividend income, I ask you to end the unfair double taxation of dividends," he told lawmakers.

The president made glancing reference to his campaign call for partially privatizing the Social Security retirement system, saying that "we must offer younger workers a chance to invest in retirement accounts that they will control and they will own."

But observers said there was little chance that he would push the politically divisive issue in the coming year.

Bush indicated that the budget he will present next week will include only a modest 4% increase, or about $30 billion, in so-called discretionary spending for programs. Much of that appears slated for a series of initiatives he proposed Tuesday, including for development of a hydrogen-fueled car.

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