GOP leaders face struggle in justifying huge tax cut

Budgetary, political costs of a war to go long way in deciding Bush plan's fate

March 04, 2003|By Julie Hirschfeld Davis | Julie Hirschfeld Davis,SUN NATIONAL STAFF

WASHINGTON - As Republican leaders begin their push for President Bush's $674 billion tax-cut plan, they are struggling to justify a large tax reduction as the nation stands on the brink of a potentially costly war with Iraq.

Perhaps more than any other factor, the costs of an invasion of Iraq - both budgetary and political - will determine the fate of Bush's tax-cutting agenda. An expensive and drawn-out war would probably lessen Congress' appetite for a large tax cut.

Congressional leaders who are working to draft this year's budget plan acknowledge that they could lack the votes for a tax cut as large as Bush has proposed.

"It's hard to say how this economy is going to fare now in the extenuating circumstances in which we find ourselves, with the deficit and the war in Iraq," said Sen. Olympia J. Snowe, a Republican from Maine. "I think it will affect what we do."

Snowe is one of a handful of influential GOP moderates who have expressed concern about the size and usefulness of Bush's tax-cut plan. They say they fear that parts of the tax cut could exacerbate an already-swelling budget deficit without giving the economy a needed boost in the short term.

Administration officials and Republican leaders want to move quickly to set aside enough money in the budget to enact Bush's proposal. The plan would abolish the tax that shareholders pay on corporate dividends, at a cost of $364 billion over 10 years. It would also slash individual income tax rates, cut taxes for married couples and parents, and provide $16 billion in investment incentives for small businesses.

Treasury Secretary John W. Snow, who has begun an intensive lobbying campaign for the package, is to testify on it today before the House Ways and Means Committee.

Bush and Republican leaders argue that the potential expenses of a war strengthen, rather than weaken, the case for new tax cuts to boost economic growth and stock values. Yesterday, in an interview with The Sun and other newspapers, Bush insisted that a tax cut "makes it more likely we'll be able to pay for additional expenditures when the economy grows, not less likely."

But Sen. George V. Voinovich, an Ohio Republican, said yesterday that "a package of around $300 billion is about all we ought to look at" given the deficit outlook and the likelihood of a war.

As the debate goes on, the drumbeat of war is threatening to shift attention from the economy and toward the realities of military action.

Recent unofficial estimates put the cost of a war in the tens of billions of dollars and as high as $100 billion - a substantial cost to an economy that is facing a deficit exceeding $300 billion for this year alone.

"It all boils down to the fact that it's the war economy," said Mark Bloomfield, president of the American Council for Capital Formation, which advocates lower corporate taxes. "It's important to make the case for [Bush's tax cut], and we support the package. But I think the final outcome of it will be determined by the war."

Indeed, a growing number of lawmakers, including some Republicans, say they are weighing the size and shape of the proposal against a likely war.

"A number of us have concerns about the size of the tax-relief package that the president has proposed at a time when we're on the verge of a war with Iraq and we're engaged in a war on terrorism," said Sen. Susan M. Collins, a Maine Republican. "There's got to be give and take on both sides."

The centrists will be crucial to Senate leaders in cobbling together a majority for Bush's tax cut. Their votes will also be needed to pass the 2004 budget blueprint this month. House and Senate leaders hope to write their budget plans by the end of next week. They must decide how much to include for tax cuts - a figure that, in turn, will determine how closely Congress can adhere to Bush's plan.

Moderates and others wary about the war's cost could ultimately force Republican leaders to shrink the tax cut.

"We just have to figure out with our members what number they want to support," said one senior Republican aide. "We need to find something they are comfortable with."

Bush also is expected soon to send Congress a supplemental spending request to pay for a war in Iraq, beyond the regular 2004 budget.

Democrats are hoping to take advantage of the timing to attack Bush's economic plans.

"The Republicans, to some extent, are playing with fire if in fact we're in a war, and young men and women are put in harm's way and we're talking about a $700 billion tax cut," said Rep. Robert T. Matsui, a California Democrat.

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