Bush Claims Tax Cut Victory as Congress Nears Final OK

President Bush, who last month disparaged a $350-billion tax cut as “little bitty,” claimed victory Thursday as Congress steamed toward passing an even smaller measure -- one that could be crucial to his political future.

The House passed the bill early this morning, 231 to 200; the Senate was expected to follow suit today.

Although Bush acknowledged that the final bill -- which includes about $320 billion in tax cuts, $20 billion in spending for aid to states and $10 billion for low-income families with children -- fell far short of his initial proposal to stimulate the sluggish economy, he embraced it and promised a quick signature.

“The principle of the bill is pretty simple -- that we believe the more money people have in their pockets, the more likely it is somebody is going to be able to find work in America,” Bush said during a visit to the Capitol.

Bush and Vice President Dick Cheney made the stop to congratulate Republican leaders on quickly reaching agreement on the measure.

Treasury officials estimate that 91 million taxpayers in 2003 will receive an average tax cut of $1,126 under the bill. The department estimated that a family of four with an annual income of $60,000 would see its federal income taxes decline from $3,750 to $2,850 for 2003.

As Bush’s comments made clear, he is counting on the bill to create jobs and spur economic growth well before the 2004 election -- and help him avoid the fate of his father, who lost his reelection bid largely because of a sagging economy.

The House vote was largely along party lines, with seven Democrats supporting the bill and one Republican opposing it.

House GOP leaders nailed down the votes needed to pass the bill after quelling a rebellion among some Republicans who objected to the measure’s increases in Medicaid spending.

The Senate vote could be so close that Cheney canceled a commencement address he was to give today in Louisiana in case he is needed to break a tie.

The bill is the third major tax cut of Bush’s presidency -- and has been the hardest for him to sell to Congress. The $1.35-trillion tax cut passed in 2001 was approved while the budget still had a surplus, and a much smaller tax cut passed last year when members of both parties wanted to revive the economy.

But this year, Bush faced skepticism even among some key Republicans that another large tax cut was part of the cure for the nation’s economic ills.

Bush initially proposed a $725-billion, 11-year tax cut. And he offered that plan not as a short-term stimulus measure but as a long-term engine of economic growth. The stripped-down bill produced by Congress focuses more on pumping money quickly into the economy by having most of the tax cuts concentrated in the next two years.

Democrats argued that the bill’s benefits were too skewed to the wealthy. According to their analysis, two-thirds of the bill’s tax cuts would go to the best-off 10% of taxpayers, while only 8.1% of the tax cuts would go to the bottom 60%.

The final bill -- containing parts of a $550-billion tax cut the House passed and a $350-billion package approved by the Senate -- was negotiated by a handful of senior Republicans. Democrats had virtually no input.

In criticizing the bill, Democrats said it would prove too big a drain on the deficit-ridden budget for years to come -- even as the government confronts the cost of the impending retirement of baby boomers.

“Under the president’s plan, the national debt is going to double, and at the worst possible time,” Sen. Kent Conrad (D-N.D.) said.

Many Republicans, meanwhile, were bitterly disappointed that the tax cut was not larger.

“I like walking in bold steps, but this got to be your average, everyday political compromise tax cut,” Sen. Lindsey O. Graham (R-S.C.) said.

But other Republicans were delighted that Congress was passing at least some version of Bush’s request.

“By virtue of being a Republican, I was born to cut taxes,” said Rep. David Dreier (R-San Dimas). “It’s not exactly what we wanted from the beginning, but we are excited that the argument has been over what size the tax cut should be,” not whether to cut taxes.

House Republicans promised to propose another round of tax cuts this year, but they conceded that the prospects are not good for passing such measures in the narrowly divided Senate.

Final provisions of the bill would:

* Set a 15% top tax rate on dividend income and capital gains. That is down from the current top rates of 38.5% on dividends and 20% on capital gains (the profits from the sale of stocks, real estate and other assets). Current rates would be reinstated after 2008.

* Speed up income tax rate cuts scheduled to take effect in 2004 and 2006, making them effective retroactively to Jan. 1, 2003.

* Increase from $600 to $1,000 the tax credit many families can take for each child, but only in 2003 and 2004. Married couples qualify for the full credit only if they earn less than $110,000 a year.

* Provide relief from the tax code’s so-called marriage penalty in 2003 and 2004 by increasing the standard deductions and expanding the 15% tax bracket for married couples.

* Increase the range of income that is taxed at the 10% tax bracket, the lowest tax rate, in 2003 and 2004.

Democrats derided as fiscal gimmickry the bill’s expiration dates for many of the tax cuts, noting that few in Washington believe Congress would allow them to end. Critics say that obscures the true cost of the bill, which could exceed $1 trillion through 2013 if the tax breaks are continued.

“This is not truth in budgeting by any stretch of the imagination,” Sen. Max Baucus (D-Mont.) said.

The final haggling over the bill also produced a roster of winners and losers among lawmakers, lobbyists and interest groups that had been trying to squeeze favorite provisions into the fast-moving legislation.

Two big winners were state officials and business lobbyists, who persuaded Congress to include major provisions that were not part of the Bush plan.

Business officials had been disappointed when the Bush proposal omitted their pet plan to increase the share of expenses they can immediately write off. Business lobbying giants -- from the U.S. Chamber of Commerce to the National Assn. of Manufacturers -- urged Congress to adopt the provision, and they were rewarded in the final bill.

State officials struggling with the largest budget shortfalls in decades were delighted when their months-long effort to get federal help paid off. The final bill includes $20 billion in aid for states -- with half earmarked to increase the federal share of costs under Medicaid, the federal-state health program for the poor. The other half goes to unrestricted aid to states for other social services.

However, that provision -- crucial to passing the bill in the Senate -- provoked a stubborn, last-minute dispute Thursday. House Commerce Committee Chairman W.J. “Billy” Tauzin (R-La.) and other members of his panel threatened to vote against the bill because of the Medicaid requirement, saying they did not want to pour more money into the program without reforming it. The standoff was ended after Cheney was brought in to mediate. Tauzin backed down after he won a commitment that the increased federal Medicaid funding would not last more than two years.

Other winners included multinational corporations and their workers abroad. The final bill did not include a controversial Senate provision that would have repealed a special tax break for U.S. citizens working in foreign countries. That provision provoked a fearsome corporate lobbying blitz. Bush personally took the tax increase off the table Monday night in a meeting on the bill with GOP leaders.

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Tax savings

Money taxpayers would save each of the next three years under the tax cut proposal:

*--* Household Married with income Single 2 dependents* $41,000 $211 $1,208 $63,000 $551 $1,100 $126,000 $1,867 $3,028 $170,000 $2,743 $3,148

*--*

*Two children under 17

Sources: Deloitte & Touche, Associated Press