This Week on Capitol Hill

Congress is still adjourned for the Easter recess and will not return until next week. The economic growth plan will be the first item of business for congressional tax writing committees. However, if Sen. Charles Grassley (R-Iowa) steadfastly maintains his guarantee to Senate moderates Olympia Snowe (R-Maine) and George Voinovich (R-Ohio) to oppose any tax cut more than $350 billion, his assurance could jeopardize the entire economic growth plan and affect the 2004 presidential and congressional elections.

President Bush originally proposed a $726 billion tax cut plan, but the budget process whittled that figure down. Prior to Grassley’s gambit, Republican congressional leaders agreed that the House and Senate would craft tax cut packages of $550 billion and $350 billion respectively (these are the numbers that the budget outlined), and then they would support the larger figure while the package is in conference. But that plan was scuttled with Sen. Grassley’s avowed opposition to pro-growth tax cuts. Without Sen. Grassley, Republicans are short on the votes needed to pass an adequate tax cut plan. However, there’s still time before the tax cut conference, and lets hope that Grassley reverses course and supports $550 billion tax relief with full dividend repeal.

If Sen. Grassley keeps his promise to Sens. Snowe and Voinovich, a tax cut of only $350 billion would lack Republican support. Already some legislators have hinted that they would not vote for a lower cut that would not have significant economic growth effects on a $10 trillion economy. Politically, Republicans would find themselves in a very difficult situation in 2004 if they passed a meager tax cut plan today that doesn’t create new jobs. Democrats could simply harangue that tax cuts don’t work.

However, there is a way for Republicans to pass tax relief and protect themselves at election time: the president’s tax cut plan can be submitted as individual bills. If $350 billion is the figure to work with, dividend repeal should be pursued under reconciliation rules, which would only need a simple majority to pass. Then submit the other pieces as stand alone bills.

Democrats will inevitably use their bread and butter class warfare arguments against the dividend tax cuts. Nevertheless, dividend tax repeal is good policy and of all the tax cut provisions, it would have the greatest impact on the nation’s long-term economic outlook and would help address corporate governance. Besides, the class warfare argument doesn’t resonate with voters as it once did.

Though the other provisions – acceleration of the 2001 tax cut, marriage penalty relief, child tax credit increase, more unemployment benefits, and increasing the amount small businesses can write off – would need 60 votes to pass, it would be difficult for legislators to oppose these measures. If legislators go on record against these provisions, they would need to explain their opposition to putting more money in voters’ pockets.

There is still time enough for the president to push a tax cut plan of at least $550 billion and to lobby senators on the issue. Now that the war is over, the president will certainly dedicate most of his attention to the economy, as he should. It will be difficult to explain to the American public in 2004 that economic growth and new jobs have failed to materialize because of Republican opposition.