Pressure still on in Bush tax-cut battle

Posted: May 01, 2003

WASHINGTON — Republican leaders worked yesterday to squeeze the biggest tax cut they could get out of Congress amid signs that the keystone of President Bush's tax proposal - the elimination of dividend taxes - was in trouble.

While top Republican lawmakers huddled with Bush at the White House, Democrats mounted an attack on his proposed tax cut, arguing that it would do little to create jobs.

Federal Reserve Chairman Alan Greenspan warned that Bush's proposed tax cuts would increase deficits and harm the economy unless Congress balanced them with offsetting cuts in spending.

The high-level meetings and stepped-up legislative pace signaled a shift in Washington from the war in Iraq to domestic matters, particularly the economy.

In his meeting with House and Senate Republican leaders, Bush urged them to pass $550 billion in cuts over 10 years - substantially less than the $726 billion he first wanted, but more than the 10-year, $350 billion limit that the Senate has set.

Eliminating the tax that individuals pay on corporate dividends alone would cost $395 billion over 10 years. Bush made that cut a central tenet of his package, arguing that dividends are double-taxed - first as corporate profits, then again when they are paid to individual stock owners.

To stay within budget limits, House tax writers are considering reducing the tax rather than doing away with it. In the Senate, some Republicans suggest eliminating the tax for only a few years to avoid breaching 10-year budget targets.

Bush also wants to accelerate income-tax cuts approved in 2001 but not scheduled to take effect until 2006. He wants to reduce the so-called marriage penalty on taxpaying couples, expand tax credits for parents, and triple the capital expenditures that small businesses may deduct from their taxes. Those changes would cost more than $300 billion over 10 years.

Democrats, eyeing the 2004 elections, said yesterday that the nation had lost 2.5 million jobs in two years and that, measured even by the administration's predictions, Bush's tax-cutting package would generate only 1.4 million jobs.

"It has very little bang for the buck, particularly in the area of job growth," said Sen. Jon Corzine of New Jersey, chairman of the Democratic Senatorial Campaign Committee.

Corzine predicted that the economy would be a top issue in next year's elections, underscoring his point by highlighting rising unemployment rates in 10 states that will elect senators next year. Among them: California, with 239,000 lost jobs; Ohio, 214,200; North Carolina, 139,400; Pennsylvania, 94,000; and Missouri, 92,800.

Greenspan, in testimony before the House Financial Services Committee, gave both Democrats and Republicans support for their views on tax cuts. But his emphasis on neutralizing the cost of tax cuts with matching spending cuts undermined the White House's argument that rising deficits are nothing to worry about.

Greenspan said tax cuts, including the elimination of the dividend tax, "will elevate long-term productivity in the country."

"If, however, in the process you get significant increases in deficits which induce a rise in long-term interest rates, you will be significantly undercutting the benefits that would be achieved from the tax cuts," he said.

In the House, Bill Thomas (R., Calif.), chairman of the tax-writing Ways and Means Committee, was shopping an idea to reduce the dividend tax to 18 percent; individuals now pay it at income-tax rates. He would cut the capital-gains tax to the same rate, or perhaps lower both even more, to 15 percent.

In the Senate, Don Nickles (R., Okla.), chairman of the Budget Committee and a member of the tax-writing Finance Committee, suggested eliminating the dividend tax for only five years, in effect cutting its 10-year costs in half.

The House and Senate tax-writing committees are expected to complete work on their bills next week, and the full chambers will act on them soon after. Reconciling their different versions could prove contentious.

Contact reporter James Kuhnhenn at 202-383-6018 or jkuhnhenn@krwashington.com.

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