Bush Tax Plan Still Struggling

Posted February 14, 2003 at 6:11pm

Moderate Democrats and Republicans in the Senate remain reluctant to endorse President Bush’s proposal to eliminate the double taxation of stock dividends, despite the White House’s successful efforts in convincing a few senior GOP naysayers to change their tune.

Last week, the White House appeared to have scored a coup by convincing Senate Finance Chairman Chuck Grassley (R-Iowa) and House Ways and Means Chairman Bill Thomas (R-Calif.) to back off earlier comments expressing their skepticism of the wisdom and effectiveness of the Bush plan. But so far the desired result — more support on Capitol Hill for Bush’s economic growth plan — has not materialized.

“I think the least of their problems is Grassley,” Senate Minority Whip Harry Reid (D-Nev.) said of the White House’s efforts. “That plan is not going anywhere, and as soon as they realize it the better off they are.”

Still, an undaunted Bush administration is making a concerted push on Capitol Hill to sell the $674 billion tax cut package, which also includes immediate reductions in individual income tax rates, increased child tax credits and tax incentives for small businesses to buy tools and supplies.

Last Thursday, Commerce Secretary Don Evans helped rally House Republicans and emphasized that many lawmakers who have expressed opposition to the dividend tax cut simply don’t understand its real effects. He implied that Grassley’s public turnabout last week, which occurred immediately after a White House meeting with Bush, was the result of an administration education campaign that will be expanded to all Members.

“Once you have time to sit down and really explain all the elements of it and how it’s going to drive the economy for years to come, people say, ‘Yeah, that’s a good idea,’” Evans said.

Even Thomas has sought to clarify that he never opposed Bush’s dividend plan, but was merely looking for the type of clarification Evans described, according to Ways and Means spokeswoman Christin Tinsworth. Tinsworth also noted that Thomas has not yet endorsed the president’s proposal, even though he plans to introduce it in its entirety as the vehicle for economic recovery.

Still, many centrists in the Senate said they do not need any extra explanations — and even support eliminating double taxation of dividends in principle — but that the $385 billion hole in the federal deficit it would create is too high a price to pay while the nation is tightening its belt in a time of potential war with Iraq and the continuing war on terrorism.

“I’m sold that you could do a dividend [tax break],” said Sen. Ben Nelson (D-Neb.). “But I’m not currently sold that this is going to provide the best stimulus for the economy. … And if you don’t see stimulus of some sort, you see red ink.”

Nelson pointed out that in his mind, his position gels with that of Federal Reserve Chairman Alan Greenspan. The Fed chairman told Congress last week the dividend tax cut was wise overall tax policy, but that enacting it at this time would not stimulate the economy and could actually imperil a recovery by raising the deficit to record levels.

That hasn’t stopped the White House from insisting that eliminating dividend taxes would reduce corporate costs of capital investment, thereby encouraging higher levels of investment in the corporate sector and resulting in higher wages for workers. Administration officials contend that workers with more money in their pockets will spend more money on goods and services, thereby creating jobs.

But that argument has not worked so far on many lawmakers.

“There are too many links in the chain before it actually creates jobs,” said Scott Milburn, spokesman for Sen. George Voinovich (R-Ohio), who is a deficit hawk.

Milburn added that Voinovich is concerned more with enacting tax cuts that have an “immediate, job-creating” effect on the economy. The Senator supports the president’s other proposals to cut individual income taxes and raise the child tax credit.

“All these other things are quicker shots in the arm. It’s adrenaline for the economy,” Milburn said.

Some key lawmakers, such as Sen. Max Baucus (D-Mont.), also dispute the White House’s contention that stock holders will see more money in their dividend checks as a result of getting rid of the double taxation.

“I think that’s reaching because I’ve talked to a lot of companies and asked them if they think it will change their behavior, and they all said, ‘No, it won’t change the amount of dividends we pay,’” said Baucus, ranking member on the Finance panel.

The continued skepticism in the Capitol could give more credence to any economic stimulus ideas that come out of Sen. Olympia Snowe’s (R-Maine) weekly meeting of centrist members. Snowe got the group of about a dozen moderates together after the president unveiled his plan in January.

Snowe, a pivotal swing vote on the Finance panel, has not rejected the dividend proposal out of hand, but spokesman David Lackey said she shares her colleagues’ concerns about its stimulative effect on the economy.

Snowe, who chairs the Small Business and Entrepreneurship Committee, is more interested in making sure small businesses get incentives to grow and that the federal government provide aid to states that are suffering financial crises.

“That will have an immediate impact on jobs,” Lackey said.

Still, Grassley aides insist that even if he were able to convince every Finance Republican to support the dividend proposal unamended, they should not be counted on to simply rubber stamp the president’s plan.

“He doesn’t want a bill that has to rely only on Republican votes,” said one Finance Committee aide. “If you try to push something through on a partisan basis, the policy won’t hold for long. He wants something that’s going to be long-term policy.”

But so far Grassley has his work cut out for him. Centrist Democrats on the Finance panel who supported Bush’s $1.3 trillion tax cut in 2001, such as Sen. John Breaux (La.), have been usually strident in attacking the dividend tax cut.

Sen. Blanche Lincoln (D-Ark.) also has expressed serious reservations. Both she and Breaux have attended Snowe’s weekly meetings.

Sen. Jim Jeffords (I-Vt.), who sits with Democrats on the Finance panel, is unlikely to support any tax cut proposal that comes through the committee, according to spokesman Erik Smulson.

“At this point, he’s not endorsing any new tax cuts,” said Smulson, who noted Jeffords would rather spend the money on “other domestic priorities” such as education and homeland security.