Bush retreats on tax-cut proposal

With Congress resisting, he says he'd accept a $550 billion package

April 16, 2003|By David L. Greene and Julie Hirschfeld Davis | David L. Greene and Julie Hirschfeld Davis,SUN NATIONAL STAFF

WASHINGTON - Bowing to stiff resistance in Congress, President Bush sharply scaled back yesterday the tax cut plan he says he needs to strengthen the sputtering economy.

Delivering his first economic address since the war in Iraq began a month ago, Bush abandoned his push for a 10-year, $726 billion tax relief package, saying he would settle for a plan of "at least $550 billion." He remained insistent that significant tax cuts would spur economic growth by giving consumers and businesses more money to spend.

"American workers and American businesses need every bit of that relief now," Bush said, "so that people who want to find a job can find one, so that people looking for work are able to put food on the table for their families."

The president has been boosted by military success in Iraq, yet is acutely aware of what happened to his father, whose soaring popularity in 1991, after the first Persian Gulf war, eroded amid tough economic times and helped lead to his re-election loss the next year.

Though polls have found that about seven in 10 Americans approve of the way the younger Bush is handling his job as president, fewer than half say they approve of his management of the economy. And a majority of those surveyed say they don't think now is the time for new tax cuts.

Speaking in the sun-drenched Rose Garden on the April 15 income tax deadline, the president said his priorities are "to meet the dangers to America wherever they gather and ... to achieve a vigorous and growing economy."

Democrats served notice that they do not intend to let Bush's wartime popularity give him a free hand in pushing his domestic priorities. Sen. John B. Breaux, a centrist Louisiana Democrat who helped Bush win passage of his $1.35 trillion tax cut in 2001, said he remains opposed to tax reductions exceeding $350 billion.

"Political popularity," Breaux said, "can only carry a bad idea so far."

Rep. John M. Spratt Jr. of South Carolina, the ranking Democrat on the House Budget Committee, said Bush's "insistence on more huge, debt-financed tax cuts in the face of big deficits is disappointing."

The president's original $726 billion plan was a mixture of tax cuts that included speeding up the income tax rate reductions approved by Congress in 2001, ending the tax that investors pay when they receive corporate dividends and offering incentives to small businesses to expand and hire more workers.

Bush argues that his plan would create 1.4 million new jobs by the end of next year, give a jolt to the stock market and, after a brief period of deficits, usher in a sustained period of economic growth.

Many lawmakers, including Republicans, disagree, making his proposal's future on Capitol Hill uncertain.

Last week, both chambers narrowly approved a budget that allows the House to pass a $550 billion tax-cut package but effectively limits the Senate to cuts costing no more than $350 billion. Bush and Republicans might be able to increase that in a conference committee.

Several Republicans in the closely divided Senate have abandoned Bush on the issue, saying deep tax cuts could balloon federal deficits, taking needed money out of the Treasury at a time of war and causing worse economic problems.

Republican Sens. John McCain of Arizona and Lincoln D. Chafee of Rhode Island have said they will not support tax cuts now. Two other Republicans, George V. Voinovich of Ohio and Olympia J. Snowe of Maine, have said they could support a tax cut plan of no more than $350 billion.

Support from Voinovich and Snowe would probably provide the votes to pass the Bush package. But aides to both senators said yesterday that their bosses are unlikely to budge unless they are convinced that cuts exceeding $350 billion would be offset by tax increases, spending reductions or other sources of revenue.

Dave Lackey, a spokesman for Snowe, said the senator "doesn't glory in the fact that she's not in a position to support the president whole hog on this, but it's a matter of principle."

Bush's spokesman, Ari Fleischer, predicted "a good fight ahead" and said the president "is going to engage in it."

For a president who rarely shows much willingness to compromise until the last minute - if at all - backtracking on the tax-cut plan seemed uncharacteristic. Still, Bush said the plan he unveiled before the war remains the recipe for economic recovery.

"The proposals I announced three months ago were designed to address specific weaknesses slowing down our economy and keeping companies from hiring new workers," he said. "Those weaknesses remain."

Bush will speak about the economy again today when he visits a Boeing factory in St. Louis on the way to an extended Easter weekend at his ranch in Crawford, Texas.

Administration officials will fan out across the country in coming weeks to promote Bush's plan. Repeating a strategy used in 2001 to pressure senators wavering on that year's tax cut, the White House sent senior Commerce Department officials yesterday to promote the Bush tax cuts in Maine, Snowe's home state, and Voinovich's Ohio.

Bush's proposal will face a key test in two weeks, when the Senate Finance Committee drafts its tax-cut proposal. Snowe serves on the committee and will be a swing vote in determining the size and makeup of the package. Without her support, the measure is unlikely to make it to the floor.

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