- The Washington Times - Monday, March 26, 2001

The tax-cut war has moved to a new battleground: the Senate Finance Committee, where Chairman Charles Grassley hopes to get President Bush's economic recovery plan through an evenly divided Senate and signed into law by Memorial Day.

With the financial markets hemorrhaging and the economy in a deepening slump, Senate Republican leaders have dramatically accelerated their schedule for passing tax-cut legislation. Instead of passing the Bush tax cuts by July, as originally planned, Republican leaders are now pushing to get an emergency bill on Mr. Bush's desk by May 28 at the latest.

"If I can pass a tax-cut bill earlier rather than later, I am ready to do that," Mr. Grassley, Iowa Republican, told me late last week.

But to do that, Mr. Grassley says he is going to have to change key parts of the Bush tax-cut plan and cut some deals with swing Democrats, deals that the White House and conservative Republicans will not like.

In an interview in his Capitol Hill office, attended by four top aides on the tax-writing committee he heads, Mr. Grassley revealed for the first time what portions of the tax-cut bill may look like when it emerges from his panel, and what he may have to do to get it to the Senate floor and to final passage.

The Iowa senator told me he wants more economic stimulus in the tax-cut bill's first year (though he dislikes using the word stimulus when discussing a bill that is really a long-term, 10-year restructuring of the income-tax code). While the House bill's cuts would amount to no more than $5.6 billion in a $10 trillion economy, Mr. Grassley plans much bigger tax cuts: $60 billion to $70 billion this year, retroactive to Jan. 1.

"So, we would be looking at a significant amount of money" being pumped into the economy in this fiscal year. "It would mean that people would have a lot less money withheld from their first paychecks in August," he said.

Mr. Grassley says he will not rule out inserting a trigger mechanism into the bill to win the support he needs from key Democrats to get the tax cuts through his committee, which is evenly divided between Republicans and Democrats. And he will need the trigger mechanism in the bill to get it passed in the Senate, where the lineup is 50-50.

"I don't like it, but it is something we may have to do to get the necessary results," he said. The trigger is aimed at slowing or delaying future tax cuts if the surpluses shrink or disappear entirely, an idea Mr. Bush and conservatives abhor because it is an incentive for lawmakers to spend more, and it sends the signal that the full tax cuts may never materialize.

But Mr. Grassley can't get a tax-cut bill to the floor without the support of Senate Democrats Max Baucus of Montana and John Breaux of Louisiana, and liberal Republican Olympia Snowe of Maine. All three want a trigger mechanism connected to the surpluses. Sen. Phil Gramm of Texas, the Senate's artful dodger on tax-cut triggers, is already working on a trigger provision. One idea for the provision would be to have it protect future tax cuts by means of required congressional votes, and to ensure that it would keep tax cuts in place if the economy falls into a recession.

Mr. Grassley told me he may have to further modify the Bush plan by reducing the nearly 40 percent top marginal tax rate to only 36 percent, 3 percent higher than the 33 percent Mr. Bush has proposed. The other Bush rate cuts may need to be modified as well.

This alone should trigger alarm signals in the White House and among the tax cut's supply-side supporters because cutting the top rates is the most important part of the economic stimulation package. These are the people who pay most of the income taxes and who save and invest more. These are the income brackets that would provide an investment-starved economy with needed liquidity.

But Mr. Grassley believes that, with some judicious concessions to wavering Democrats, the bulk of the Bush tax-cut plan will pass with a number of Democrats supporting it.

How many? "We have reason to believe that six or seven will be on our side," he told me. Mr. Grassley said he knows this from private conversations he has had with some key Democrats and from Republican leaders who have been lobbying their colleagues on the other side of the aisle.

First, however, the Senate must pass its budget resolution, which will be tailored to slow down the rate of discretionary spending increases to the 4 percent level Mr. Bush wants and to provide room for the tax cuts. That bill will also give the tax-cut legislation the propulsion it needs to get to the floor.

But the big preliminary fight will be getting at least 11 votes in the evenly split Finance Committee, a major test for Mr. Grassley in his first year as its chairman. Once it gets to the floor, he thinks there will be a sufficient number of Democrats "who will not want to block the revitalization of the economy."

The betting in this corner is that he will be successful. But at what price to Mr. Bush's plan for sizable cuts in the income-tax rates and to his pledge that taxes should take no more than one-third of anyone's income?

Still, Mr. Grassley told me, when the smoke clears from the coming battle, "this will be the most significant change in tax rates since 1986," leading to long-term growth in the U.S. economy. Keep the faith. Help is on the way.


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