Tax-cut packages stack up ; Bush likely to unveil his plan next month

WASHINGTON — The spirit of gift giving is in the air, and on

Capitol Hill this holiday season that means tax cuts.

President Bush and lawmakers from both parties are busy compiling

their wish lists for the New Year, and there is no shortage of ideas

for reducing some taxes, repealing others and speeding up those

already set to phase out.

It’s not that the federal Treasury is suddenly overflowing. In

fact, the Congressional Budget Office said that the federal budget

ran a deficit of $157.7 billion for the fiscal year ending Sept. 30,

and, if the nation goes to war with Iraq, the federal balance sheet

is expected to dip further into the red.

Most of the would-be tax cuts are dressed up as “economic

stimulus” measures, which are designed, at least in theory, to spur

business and consumer spending and rev up the economy. While the

economy grew a respectable 4 percent in the third quarter, year-end

predictions are for an anemic 2 percent to 2.5 percent. So,

proponents argue, although tax cuts will surely cost the country

money, a robust economy will eventually put ample revenue back into

the federal government.

Bush is expected to outline a tax-relief package in his State of

the Union address Jan. 28, but already some possibilities have


According to congressional Republican sources, among the likely

candidates are: Accelerating the start date of the phased-in $1.35

trillion tax cuts that were passed in 2001; providing business tax

relief in the form of more generous expensing for small businesses

and additional depreciation on capital purchases; and reducing or

eliminating the tax on corporate dividends.

Bush has made no secret of his desire also to make permanent the

tax-cut package Congress passed last year. But skeptics, notably

congressional Democrats, question how much the economy will be

stimulated by such things as permanently eliminating the tax on

multimillion-dollar estates. Bush contends it will. He has argued

that the 2011 expiration date of the tax cuts creates “uncertainty”

in the economy and that “people need a stable environment in order

to create jobs.”

It wouldn’t be cheap, though. Just a two-year extension of the 10-

year tax-cut package is estimated to cost about $200 billion,

according to Congressional Quarterly Weekly. Congressional sources

say that the White House is aiming to have a total tax-relief

package amounting to $300 billion over the next decade.

The buzz over tax cuts represents a shift away from Clinton-era

focus on debt reduction as a means of national economic stability.

Not surprisingly, clamor for tax relief has only heightened since

Republicans reclaimed the Senate in the midterm elections in

November and Bush could look forward to a newly receptive Congress

in January.

No one has any illusions that Bush isn’t also looking forward to

2004, when he stands for re-election. The fate of his president

father, whose political fortunes tanked with the national economy,

is undoubtedly on his mind. In recent weeks he has hired a new

economic team whose job it will be to sell tax cuts to Congress and

the American people.

“If we pass something this spring or summer, it would provide

some relief to the economy by 2004, which would provide some relief

going into the election campaign,” said Jeff Lemieux, a tax analyst

at the centrist Progressive Policy Institute.

But not everyone is enthusiastic about Congress tinkering with

the economy. Federal Reserve Board Chairman Alan Greenspan has said

that making the 2001 tax cuts permanent wouldn’t offer much short-

term voltage to economic growth, and he cast doubt on the ability of

Congress to steer the economy.

Instead, Greenspan has counseled caution, saying that the economy

is merely in a “soft patch” on the way to recovery.

Business groups and many Republican lawmakers see it differently

and predict that Congress will move ahead with a tax-cut package


“I don’t think Alan Greenspan would say we are in a robust

economy or this is a typical recovery,” said Rep. Jim McCrery, R-

Shreveport, a member of the tax-writing House Ways and Means

Committee. “I wouldn’t hesitate to cut taxes because Alan Greenspan

doesn’t think we should. The good news is that Republicans and

Democrats see the need for further tax cuts as a way to stimulate

the economy.”

The two parties share some common ground when it comes to tax

relief. Popular in both parties are proposals to let small

businesses deduct a larger amount of their capital expenses from

their taxable income and allowing businesses of all sizes to

depreciate a heftier share of their capital outlays.

By giving businesses investment tax relief, the thinking goes,

they will spend more money on new computers, machinery and other big-

ticket items — spending that will kick-start the economy.

In general, though, Democrats are keeping a wary eye on the White

House and are bracing for a battle over a critical point in the tax-

cut debate: Who gets the relief?

“We want to make sure the package isn’t one that just gives away

money to the high-income brackets,” said Rep. William Jefferson, D-

New Orleans, a member of the Ways and Means Committee. “It has to be

something that really stimulates the economy. It shouldn’t be to

stimulate savings, but to stimulate consumption.”

Popular among Democrats is a temporary elimination of the 12.4

percent Social Security payroll tax that workers and businesses

split. Known as a payroll tax “holiday,” the idea would be to put

cash in consumers’ pockets immediately, and their spending will spur

the economy. The idea has a diverse following, including the

Business Roundtable, Sen. Pete Domenici, R-N.M., and Sen. John

Kerry, D-Mass.

Sen. Mary Landrieu, D-La., also floated the proposal during her

recent campaign, but it’s unclear how forcefully she will push it in


Critics acknowledge that it would put money in people’s pockets,

but they aren’t convinced they will spend it. When consumers

received government tax rebates last year, many of them paid off

credit-card debt or put the money into savings, neither of which

does much to jolt the economy. Jefferson said that a payroll tax

holiday could be geared to low-income wage earners.

“They will spend the money, so it will have the stimulative

effect we are looking for,” he said.

When Congress returns, Democrats are also intent on providing

some assistance to unemployed workers and are touting quick action

as a means of economic stimulus. Bush has embraced an extension of

unemployment benefits, and some House Republications are also

receptive to the idea, although there is no consensus yet on what a

proposal will contain.

Neither party expects to monopolize a tax-cut package, and both

recognize that to get the necessary votes, the largesse will have to

be spread around. The National Association of Manufacturers, for

instance, is pushing business tax breaks worth about $150 billion,

leaving what they say is “room for competing ideas.”

Wayne Brough, chief economist for the business-friendly Citizens

for a Sound Economy, said that despite Republicans controlling the

White House and Congress, out of political necessity there will be

room made for Democratic proposals in order to get any package


“Especially after a year of business scandals, it will be hard to

say you are just cutting taxes for business,” Brough said. “When you

put the package together, you want something in there for everyone.”