- The Washington Times - Saturday, October 6, 2001

President Bush yesterday opened a divide with congressional Democrats by proposing to devote the entire $60 billion economic-stimulus package to tax relief rather than new spending.

Under pressure from Republicans and their allies to emphasize tax cuts in the latest response to economic damage done by the Sept. 11 terrorist attacks, the president in a Rose Garden statement said that he and Congress already have approved $60 billion in increased spending for defense, security, disaster relief and airline rescue, so any additional measures should focus on tax cuts.

"In order to stimulate the economy, Congress doesn't need to spend any more money; what they need to do is to cut taxes," he said. "I propose that the United States Congress, as quickly as possible, pass tax relief equal to or a little bit greater than the monies that we have already appropriated."

In a gesture to Democrats, however, Mr. Bush said the tax package should include a rebate or credit for Social Security taxes paid by about 30 million low-income taxpayers who missed out on this summer's $300-to-$600 tax rebates because they do not earn enough to pay income taxes. That proposal would take up about one-third of any $60 billion package.

The payroll-tax rebate idea is opposed by some conservative Republicans but is a favorite of former Clinton Treasury Secretary Robert E. Rubin. He points out that low-income consumers are strongly inclined to spend their tax rebates and that higher-income taxpayers mostly have been saving the rebates they received in recent weeks, providing little stimulus to the economy.

Congressional Democratic leaders also support some limited tax breaks for businesses. But they want to devote about half the stimulus bill to beefed-up spending on everything from unemployment and health benefits for laid-off workers to the building of roads, schools, bridges and even weatherization projects.

"I fear that some of the more extreme voices in the Congress are now pressuring the administration to take a more divisive approach to the stimulus legislation," said Senate Majority Leader Tom Daschle, South Dakota Democrat. Democrats were rankled in part because Mr. Bush chose to break the news after Congress had recessed and most legislators had left town yesterday.

"We need to resist those partisan influences and continue to take the best ideas advanced by both parties," Mr. Daschle said.

Republicans were delighted with the president's new emphasis on tax cuts.

"President Bush clearly has focused on measures that will truly be helpful to our sagging economy," said House Majority Whip Tom DeLay, Texas Republican. "Since there has been no shortage of government spending in recent weeks, Congress must now focus on providing a new round of tax relief."

Mr. DeLay and other Republican leaders have been disappointed, however, that Mr. Bush has not endorsed a cut in capital-gains tax rates, a measure strongly opposed by Democrats.

Both parties agreed to enact a $60 billion to $75 billion stimulus package, lasting from one to three years, after getting the endorsement of Federal Reserve Chairman Alan Greenspan and Mr. Rubin, who said in a closed-door meeting this week that it was urgently needed to revive the economy from a widely predicted recession.

Some areas of consensus on tax cuts appear to be emerging, such as to give small businesses more immediate write-offs for their purchases of equipment such as computers and security systems. Mr. Greenspan urged such expanded investment write-offs to help reverse a slump in business spending on technology and other investments in the past year.

Mr. Bush also moved toward Democrats on Thursday by proposing $6 billion of increased unemployment and health benefits for workers laid off as a result of the attacks.

But Democrats say that proposal is too limited. They want to expand coverage to all unemployed workers, including those who lost their jobs before the attacks and some part-time and contingent workers who don't currently qualify for jobless benefits.

The president and congressional Republicans would like to use the stimulus package, which along with the already-approved spending measures would entirely deplete this year's budget surplus, to accelerate the phase-in of tax-rate reductions approved this spring and to provide new tax cuts for businesses hit hard by a collapse of profits in the past year.

Mr. Bush yesterday proposed specifically to do away with the alternative minimum tax that corporations must pay if existing tax deductions otherwise would enable them to escape paying taxes. Republicans believe this would help businesses deal with depressed profits and boost their stock prices, but Democrats balk at the idea of allowing businesses to avoid paying taxes.

The prospect of a sizable package with significant tax relief for businesses gave a lift to stock prices this week and helped the stock market pull back from a loss yesterday. The Dow Jones Industrial Average finished up 59 points after initially losing 100 points earlier in the day.

In part out of hopes that the massive infusion of spending and tax cuts Congress is readying will help pull the economy out of recession, the blue-chip index has recouped about a third of its record loss in the first week of trading after the attacks.

John Godfrey and Dave Boyer contributed to this report.

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