Daschle And Treasury Department At Odds Over 'Discipline'

by Mike Godfrey, Tax-News.com, New York

07 January 2002

After US Senate Democrat majority leader Thomas Daschle set out a master-plan for the US economy which included revised ideas for tax cuts and a return to 'fiscal discipline', Chief Treasury Spokesman Michele Davis warned him against moving to raise taxes. "In terms of his call for 'fiscal discipline,' we believe very strongly that fiscal discipline comes from restraining the growth in spending. If he's referring to tax hikes, he's proposing exactly the wrong medicine for the economy right now," said Davis.

Daschle presented "two new ideas to try to get the stimulus debate back on track," after the Senate failed to agree a stimulus compromise before the holiday recess. He also blamed the Bush administration's $1.35 trln, 11-year tax cut for nearly halving the long-term fiscal surplus, and keeping long-term interest rates higher than they would have been. The tax cut "probably made the recession worse," Daschle said. But Davis said two-thirds of the decline in the budget surplus since last fall has been due to the economic slowdown, not the tax cut.

The Senate leader proposed reimbursing companies' payroll taxes for hiring new workers, restoring cut hours, or giving raises. To speed a recovery in business investment, he also called for increased depreciation allowances for companies. This would help boost capital spending, in the same way that zero-interest financing by auto dealers has generated a surge in car sales, he explained. Companies would be able to write off 40 pct extra depreciation for the first six months, and a bonus 20 pct for the next six months, of the stimulus plan. The stimulus proposal, also including enhanced unemployment and health care benefits, should last just one year, to avoid harming the longer-term budget picture, he said.

Treasury Secretary Paul O'Neill said in a statement he will work with Daschle on his proposals to cut taxes and encourage employers to create more jobs. "Creating jobs and getting the economy growing again is the surest path back to Washington budget surpluses," O'Neill said.

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