White House Ponders Further Tax Cuts

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

19 November 2002

Tax cuts are back on the agenda in Washington as the President's team and top Republicans work out how they can parlay their new dominance in Congress into a further stimulus for the economy. But lacking a super-majority in the Senate to overcome filibuster obstructionist tactics, the GOP has to carry a significant number of Democrats with it, if legislation is to pass quickly.

There is no clear view however among policy-makers as to the best tactics. Treasury Secretary Paul O'Neill is among those who think that the economy is already recovering, and that major tax cuts will simply increase the budget deficit to uncomfortable levels for no real purpose. White House economic adviser Lawrence Lindsey however leads a camp in favour of broad-based cuts aimed at shoring up a weak and sputtering recovery. The President may incline more towards the White House view:

"The president believes that it is important to work with the new Congress to pass an economic-growth and jobs package early next year," White House spokeswoman Claire Buchan said.

Mindful of the need to attract Democrat senators to tax-cut legislation, one favourite set of ideas would focus on accelerating just those parts of the President's 2001 tax-cutting package that benefited families and lower-income earners. This might cost $200bn over ten years, but would be politically more acceptable than a broader acceleration of the 2001 package. Making the 2001 package permanent would have little immediate effect, and would cost about $600bn from 2011 to 2013.

Ending the double taxation of dividends, an idea which shot to prominence in the weeks before campaigning for mid-term elections began, remains on the agenda, as does a business-friendly adjustment of the depreciation write-offs enacted last March, perhaps by increasing the first-year 30% write-off level.

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