President Bush Joins Congressional Push For Tax Cuts As Surplus Shrinks

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

27 September 2001

White House Budget Director Mitchell Daniels told Congress this week that he expects this year's budget surplus to come in at $120bn rather than the $158bn expected as of last month; and next year's surplus is now expected to be a mere $40bn rather than the $176bn forecast in August.

Against this backdrop, and a determination on the part of Congressional leaders to maintain the budget discipline shown earlier in the session, there is nonetheless sustained pressure for a further stimulus package of cuts and incentives to prop the weakening US economy. Democratic and Republican leaders yesterday met with administration officials to discuss the outlines of a stimulus plan, and the President indicated for the first time last night that he was in favour of further stimulus measures. But there is a lively and fast-moving debate about the possible contents and timing of any plan. "New ideas are being floated every minute," a lobbyist said. "I don't believe anyone knows what's happening."

"We want to stimulate the economy but we don't want to blow up the budget discipline that we had. We have to think a little more deeply here," said Senate Finance Committee Chairman Max Baucus, D-Mont. "There's a lot of indecision, and I think legitimately so. And, if you look at people like Bob Rubin and Chairman Greenspan, people who have had positions where they have to bite the bullet every day, both in government and outside of government, and if they have some indecision, it ought to give Congress a deliberative process of looking through everything." Mr Baucus said there was a general agreement among Democrats and Republicans on the committee that any possible aid package should be temporary.

Congressional leaders don't want to revert to deficit funding, and will try to preserve the 'lock-box' concept of social security funding. "There is no doubt we will pay back whatever amount may be taken from the [Social Security] trust funds," said Senate Majority Leader Thomas A. Daschle (D-S.D.). "We will insist on fiscal discipline and responsibility. But first we must insist on ensuring that our national security is maintained and protected."

Federal Reserve Chairman Alan Greenspan and former Treasury Secretary Robert Rubin told senators in a private meeting Tuesday that an economic stimulus package worth as much as $100 billion would be an "appropriate benchmark" to aid the struggling U.S. economy, lawmakers said. Greenspan and Rubin said that if Congress decides to approve a stimulus package, it should total at least $100 billion over two to three years and be temporary. Meantime, as they did last week, they urged senators to wait for a week or two to see how the economy is faring before deciding on whether to pursue a stimulus plan.

The National Association of Manufacturers however doesn't think this is a time to wait. "Now millions of American businesses find themselves struggling to keep their doors open and their workers employed," said Jerry Jasinowski, the group's president. The association wants tax cuts for individuals under the President's $1,350bn package to be brought forward, and wants additional corporate income tax reductions.

Robert Rubin spoke in favor of individual tax reductions as a way to stimulate the economy and against business tax reductions, including a cut in the corporate income tax rate or in capital gains taxes. Favored by the GOP, the corporate rate cut has also been pushed by Treasury Secretary Paul O'Neill and some White House economic advisers.

House Speaker Dennis Hastert has decided to press ahead with an economic stimulus package, although he will respect Greenspan's and Rubin's advice to wait a short while before putting all the elements together. John Feehery, the speaker's press secretary, said the size of the package and the specific details had not been determined, but added that the speaker believes the extra stimulus is required to increase consumer and investor confidence since the Sept. 11 terrorist attacks. The measure also could be used as a vehicle for helping workers directly affected by the attacks, he said. Such proposals as extending unemployment insurance and paying a portion of the cost of the health insurance of jobless workers could be considered, along with an increase in the minimum wage, he said.

Mr Hastert's team is considering a wide range of possibilities, including corporate income tax rate or capital gains tax cuts, accelerated tax writeoffs for business equipment and several individual tax-cut proposals. The speaker wants to speed up higher contribution limits for 401(k) and individual retirement accounts contained in the president's $1.35 trillion, 10-year tax cut. According to one Democratic staff member in the House, the proposal for faster tax writeoffs for business equipment is the one corporate tax relief measure that has the best chance of being included.

For his part, House minority leader Dick Gephardt (D-Mo.) introduced a bill Tuesday that would provide workers directly affected by the attack with new unemployment and health benefits. Sen. Jean Carnahan (D-Mo.) introduced the same measure in the Senate. But Senator Charles Grassley (R-Iowa), the ranking Republican member, said no decision had been made on whether to go forward with a stimulus bill. "I think it has to be temporary, but significant enough to make a difference," Grassley told reporters. He underlined the extent of the stimulus measures that have already been put into place: "So you take the tax cut that goes into effect next year, plus the $40 billion the Congress has recently appropriated, plus the additional spending, plus the airline spending, and a rough calculation is about a 2 percent real increase in stimulus, fiscal stimulus," said Grassley.

The White House's Domestic Consequence Committee also has a stimulus package under review, and President Bush last night signaled his willingness to engage with Congress to craft a broad-based stimulus plan. "The president is deeply concerned about the economy and the people who have lost their jobs," White House spokeswoman Claire Buchan said. "He believes he needs to work with Republicans and Democrats to develop solutions to address the problem."

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