Tax-Cut Plan:
As obstacles continue to mount for the President's tax-cutting and spending "growth" plan, the White House maintains its original tack while Congressional Republicans heighten their efforts on the President's behalf.
1) At the National Governors' Association late February meeting, the administration received pressure to increase federal aid to states. Most states are running budget deficits because they increased spending and lowered taxes when they ran surpluses in the 1990s, and now with a slower economy, tax revenue is not high enough. Accordingly, these states-reluctant to increase taxes or cut spending themselves-are calling on Washington for help.
2) Washington Democrats, in turn, use the governors' pleas as a tool for opposing Bush's plan, which would, at least in the short-term, reduce federal revenue and make it harder for Congress to institute new spending programs.
3) Senate Minority Leader Tom Daschle (D.-S.D.) has proposed an alternative "growth" plan that, instead of reducing taxes, would have the government pay $300 to every American and new money to the states. While the Daschle plan has almost no chance of passing, it could serve as an important bargaining position.
4) Also, the Congressional Budget Office (CBO) forecast that the President's budget would cause budget deficits totaling $1.8 trillion over the next decade. CBO's 2004 deficit figure of $338 billion is 10% higher than the White House's calculations. For 2005, the CBO's deficit forecast of $270 billion is 20% higher than the prediction of the White House's Office of Management and Budget (OMB).
5) The CBO numbers give some added ammunition to the Bush plan's opponents. Still, House GOP leaders will have little or no trouble passing the package through the lower chamber. However, many House members would like to tinker with the plan to make it more passable in the Senate.
6) A couple of measures have been suggested as alternatives to the most attacked aspect of the Bush plan: the elimination of taxation on individual dividend income.
7) The plan is to put the tax cut provision into the Budget resolution, so that Democrats will not be able to filibuster it. With Sen. Zell Miller (D.-Ga.) on board, Majority Leader Bill Frist (R.-Tenn.) cannot afford to lose more than two Republican votes-a task made increasingly difficult by the CBO numbers.
8) House Rules Committee Chairman David Dreier (R.-Calif.) has proposed solving the tax-cut puzzle by addition instead of subtraction. He would add a prospective cut in capital gains rates to the dividend tax exclusion. That suits House Majority Leader Tom DeLay (R.-Tex.), whose strategy has been to beef up the Administration bill.
Economic Team:
The overhaul of Bush's economic team was completed Wednesday with the resignation of Glenn Hubbard as chairman of the White House Council of Economic Advisers.
1) This is the third resignation in the top tier of Bush's economic team in the past two months. Treasury Secretary Paul O'Neill and National Economic Council (NEC) Director Larry Lindsey were both fired in December.
2) While Hubbard's resignation completes the house-cleaning process begun in December, it differs in important ways from the December changes. First, Hubbard was not pressured out in the way his two colleagues were. The White House did not hide the fact that they had asked O'Neill and Lindsey to leave. Hubbard left to keep his tenured speaking position at Columbia University.
3) Like O'Neill's and Lindsey's departures, Hubbard's stepping down does not come as a surprise. In contrast to those two announcements, the news about Hubbard is not sudden. Hubbard had expressed months ago his desire to leave Washington.
4) Also, this time, the White House immediately nominated a successor. The January search for a new Treasury Secretary and NEC director took many days, opening the door to public debate and media speculation-a situation the White House was happy to avoid this time.
5) Bush has nominated Harvard economist Gregory Mankiw, who is widely known and published and has the respect of liberals and conservatives. The central cause of concern is Mankiw's theories on the consequences of budget deficits.
6) Mankiw has published the anti-supply-side theory that when the government runs budget deficits, that serves to drive up interest rates, discouraging borrowing and slowing the economy. Washington conservatives are worried that Mankiw may be lukewarm about Bush's proposed tax cuts, which will make continued deficits more likely.
7) Being the hand-picked successor of Hubbard, however, Mankiw will probably be publicly supportive of the tax cut. This raises concerns that tax-cut opponents will attack Mankiw as hypocritical or disingenuous.
