May 23, 2003
A Tax Cut Without End
ASHINGTON, Friday, May 23 — True, the price tag on the tax bill the House approved this morning is officially only $320 billion over 10 years, barely two-fifths of the $726 billion President Bush proposed in February.
True too, it is even smaller than the $350 billion measure initially passed by the Senate that Mr. Bush ridiculed as "little bitty."
But the $320 billion figure, which is expected to clear the Senate today, is artificial.
No one expects that tax breaks for married couples and a bigger tax credit for children, popular features of the bill, will be allowed to expire after next year. This is what lawmakers call a sunset. It was put into the measure to hold down the 10-year cost.
Nor, barring a political upheaval that puts Democrats in the White House and in control of Congress, is it likely that the lower tax rates on dividends and capital gains will be allowed to expire after 2008, another sunset in the bill.
If these elements of the tax cut are calculated on a 10-year basis, the cost in lost revenue stands to be over $800 billion, more than what the president proposed, according to the first analysis by the Center on Budget and Policy Priority, a liberal research institute.
More important, the tax reduction this year and next year under the Congressional agreement is significantly larger than what the president originally proposed.
The Congressional tax staff estimated that the agreement would lead to a tax cut of $61 billion in the 2003 fiscal year, which ends on Sept. 30, and $149 billion in 2004.
The Congressional Budget Office reported that the president's plan would have lowered taxes by $35 billion in 2003 and $117 billion in 2004.
If, as the president says, the main purpose of the tax cut is to get the economy moving, the measure before Congress may provide more stimulus than Mr. Bush's proposal.
So for a president who seems to favor the largest possible tax cut in every circumstance — whether the economy is strong or weak, whether the budget is running a surplus or a deficit — this legislation was a substantial accomplishment.
Before this week's agreement, all the stars seemed aligned against another large tax cut.
The budget deficit, long the bugaboo of Republicans, could reach $400 billion this year, by far, the largest in history in dollar terms and growing with each new estimate.
The public is not clamoring for lower taxes. Just Thursday, The Wall Street Journal/NBC News poll showed that only 29 percent of the public believes "tax cuts are the best way to increase economic growth and create jobs," while 64 percent said there were "better ways."
A survey this month by Deloitte & Touche, the accounting firm, found that few business executives thought a reduction in the tax on stock dividends, the centerpiece of the president's plan, would particularly help their businesses or the economy.
In the closely split Congress, Mr. Bush had almost no Democratic support and had to deal constantly with qualms of moderate Republicans.
So how did the president pull it off? How in the face of all these obstacles was he able to win Congressional approval of one of the largest tax cuts in history — on top of the $1.3 trillion, 10-year cut adopted just two years ago?
Part of the answer, of course, is Mr. Bush's popularity, rooted in his stand against terrorism and success in the war in Iraq. At every turn, the White House and allies in Congress insisted to Republican holdouts that challenging the president on tax cuts amounted to disloyalty to a wartime president.
But even more, the president succeeded because of a set of tactics that involved remaining flexible in his goals, taking advantage of division among Democrats, campaigning vigorously in the states of crucial senators and knocking the heads of Congressional leaders who often seemed more interested in pride of authorship than in enactment of legislation.
Then on Wednesday afternoon and again Thursday afternoon, Mr. Bush dispatched Vice President Dick Cheney to Capitol Hill to broker deals. On Wednesday, Mr. Cheney won the final votes needed for passage in the Senate. On Thursday, when a snag developed in the House, he brought recalcitrant Republican representatives aboard.
Come the election campaign next year, the president can credit his tax cuts if the economy has improved. If the economy is still flagging, he can blame Democrats for opposing his initial proposal.
The tax bill, said Senator Robert F. Bennett, Republican of Utah, was the latest example of Mr. Bush's talent as a political strategist. Mr. Bennett, chairman of the Congressional Joint Economic Committee, continued:
"The president looks at the economy and looks at the electorate and grasps that the electorate wants to see someone doing something. They don't care about the details. So here is Bush with the political smarts to understand that the best medicine is to be seen as a leader making bold strokes, moving out on an issue where others are temporizing."
In that vein, Mr. Bush remained focused on getting a bill passed, any bill, without fretting over the specifics. At first, he demanded a bill no smaller than $726 billion over 10 years. When that proved impossible, he lowered his sights to $550 billion, then to $350 billion and finally on Wednesday to the $320 billion that was agreed to.
As recently as Monday, when he called Congressional leaders to the White House, he was insisting that all taxes on dividends be eliminated, even if only briefly. When that proved not to fly, he quickly relented and accepted a measure that would reduce the tax rate on dividends and capital gains to 15 percent.
"By the force of his personality," Mr. Bennett said, "he stepped into the squabble between the House and the Senate and brought everyone into the room and said, `You're going to get this done before Memorial Day.' Clinton would have stood at a board with a Magic Marker and worked through the details. Bush was more interested in getting a bill than he was in what was in the bill."
Bill Clinton might also have framed the tax cut as a choice from two things. You can cut taxes, or you get prescription drug coverage under Medicare. You can cut taxes, or you can save Social Security. At least that is the way he succeeded in blocking Republican tax cuts during his presidency.
This year, Mr. Bush was helped by the fact that Democrats abandoned that approach and offered tax cuts of their own — smaller than Mr. Bush's, aimed at the middle class and not the wealthy, but tax cuts nonetheless. Democrats were never able to make the case that their way was the better way.
For sure, this is not the last Bush tax cut. Under the legislation, popular tax relief like the $1,000 tax credit for each child and tax bonus for married couples are to expire at the end of 2004. Congress will not want to let them lapse in an election year. So be prepared for another tax bill next year.