Washington Outlook
Edited by Lee Walczak
Taxes: How Many Arms Can One President Twist?
George W. Bush has earned a reputation as an optimist who rarely obsesses about past missteps. But faced with new polls that indicate his ambitious $1.46 trillion tax-cut plan is in trouble, the President now acknowledges the obvious: Just as he must shore up wavering public support for war against Iraq, he'll need to crank up the marketing campaign to save his "jobs and growth" package. "We've obviously got some selling to do so that people understand the logic behind the plan," Bush said in a Feb. 25 interview with BusinessWeek and representatives of other financial news organizations.
Here's why: In a Feb. 12-18 survey by the Pew Research Center for the People & the Press, only 42% of respondents approved of Bush's handling of tax policy. And while House Republicans are likely to rubber-stamp his plan, the Senate is another matter. Bush's biggest problem is the package's centerpiece, a $385 billion effort to eliminate the tax that individuals pay on dividends. Even with the backing of one Democrat, Georgia's Zell Miller, Bush simply doesn't have the votes today.
The White House doesn't think the situation is irreversible because Persuader-in-Chief Bush does a powerful job when he gets rolling. To increase the pressure on wavering Senate moderates, he has made a half-dozen appearances around the country aimed at whipping up support among their constituents. At the same time, his new economic team is traveling to Wall Street and Main Street, focusing on small-business leaders who would benefit from tax-rate reductions and new incentives for capital investment.
Another key to the comeback campaign: mobilizing big dividend-paying corporations to encourage investors to back the dividend tax cut. For instance, investment banker Morgan Stanley (MWD
) is asking shareholders who back the dividend plan to contact their lawmakers.
Inside the Beltway, White House operatives are pressuring business lobbyists to get in line. The goal is to recreate the Tax Relief Coalition, an umbrella organization that helped muscle the 2001 cut through Congress. But while business groups are dutifully adding their names to letters of support, their backing is tepid. Why? Because many companies want to scale back the dividend cut in exchange for other tax breaks, such as accelerated depreciation.
Unlike 2001, when Bush pressed hard for his entire tax agenda, he is already downplaying some elements of this one. For example, his proposal to dramatically expand tax-free savings accounts has run into a bipartisan buzz saw. Says one business lobbyist: "They've overreached. It's just not going to happen." Instead, Republican lawmakers may opt to sweeten existing IRAs.
Odds are better for Bush's dividend cut, but he's unlikely to get the full exclusion. Its fate "is entirely based on his use of the bully pulpit," says Senate Finance Committee Chairman Charles E. Grassley (R-Iowa). "You have to have support at the grass roots, or I don't think its going to fly."
To boost odds in the Senate, GOP strategists hope to sway deficit hawks by trimming the size of the plan or having the tax cuts expire in five years. That would lower the cost of Bush's growth package--the core of his tax cut--to $390 billion from $694 billion.
Will it work? In his session with reporters, the President described the Senate as "a peculiar body." That's why he may have to resort to peculiar tactics--and aggressive arm-twisting--to turn his troubled economic recovery plan into a viable blueprint.
By Howard Gleckman and Richard S. Dunham
On the Record
On Feb. 25, BusinessWeek White House Correspondent Richard S. Dunham joined a roundtable discussion with President Bush. The highlights:
On predictions that his economic plan will falter:
In 2001 we were [said to be] doomed to failure more often than we were going to be successful.
On the need for economic stimulus:
There is a risk that we're not really through with the recession. There's a skittishness when it comes to capital investment[and] uncertainty about consumer demand. I believe we can address those with a good economic stimulus package.
On Fed Chairman Alan Greenspan's criticism of the Bush budget deficits:
I do share [his] concerns about deficits ... [but] I am going to spend what it takes to win the war.... I also recognize how deficits occur. The best way to grow out of deficit is through economic stimulus coupled with financial discipline.
On the rationale for encouraging companies to pay dividends:
We went through a very interesting period...when people said, "Invest in my company because I've got a great story." It might have been on one of the TV shows where I saw [a fellow say to a CEO], "But you don't have any assets." And he goes, "Well, this is the New Economy."
A dividend-paying company will...be a company that no longer relies upon a stock price based on hope as opposed to a stock price based on merit.
On pressure to compromise:
I want what I proposed, and I intend to work for it.
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Copyright 2003, by The McGraw-Hill Companies Inc. All rights reserved.
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