- The Washington Times - Tuesday, October 16, 2001

After weeks of squabbling between Republicans and Democrats over the form the fiscal stimulus package should take in the wake of the Sept. 11 terrorist attacks, House Ways and Means Committee Chairman Bill Thomas took the initiative last week, spearheading a mostly tax-based package through his committee. The House could take up the measure as early as Thursday.

The legislation, which would inject $100 billion of fiscal stimulus into the slackening economy over the next 12 months, genuinely addressed concerns of congressional Democrats. The bill, for example, would provide states with $9 billion in federal grants to finance an extension of unemployment benefits and another $3 billion in health care assistance. Responding to a major Democratic demand, the bill would provide $13 billion to finance payroll tax credits of $300 for individuals and $600 for couples to low-income workers who did not qualify for the income tax rebate distributed earlier this year. Yet, Democrats rejected these significant concessions as insufficient; and the bill passed by a 23-14 party-line vote in the Ways and Means Committee.

Apart from the payroll-tax rebates, Democrats have been demanding a fiscal stimulus package weighed heavily in favor of spending. Congressional Republicans and the White House have been pushing for a fiscal package primarily emphasizing tax relief.

A much stronger case can be made on behalf of a tax-oriented package. After all, Congress has already passed a post-attack spending-based bill totaling $45 billion $20 billion for rebuilding New York City, $20 billion for desperately needed increases in defense spending and a $5 billion bailout for the airline industry, which doesn't include another $10 billion of airline loan guarantees. Meanwhile, Congress and the White House have also agreed upon a targeted increase of 7 percent for the fiscal 2002 appropriations bills, which is significantly higher than the 4 percent increase in spending President Bush initially sought. Yet, even these spending increases have not satisfied the Democrats' seemingly insatiable appetite for spending.

Tax relief in the Ways and Means package will affect both consumers and corporations, aiming to buttress both consumer and investment spending. Recognizing that consumers are more inclined to spend tax cuts that are permanent, as opposed to one-time rebates, the bill would immediately reduce the 27 percent personal income tax rate to 25 percent, which was not scheduled to become effective until 2006. It is such a good idea that the committee should have accelerated similar reductions in other tax brackets. Regarding the capital gains tax, the bill permanently repeals the five-year holding period that had been required before taxpayers could qualify for an 18 percent rate, as opposed to the 20 percent rate. While this represents progress in the right direction, a better alternative would have been an across-the-board cut in the capital gains rates.

On the corporate side, the bill proposes an increase in the depreciation allowance for certain assets, including software, acquired during the two-year period following the attacks. The bill also repeals the corporate alternative-minimum tax (AMT). But it made its repeal retroactive to 1986, adding about $21 billion in 2002 to the package. The money for retroactive AMT repeals could have been more productively employed to accelerate the reductions in personal income tax brackets above the 27 percent rate. Yet, even with its flaws, which can be corrected on the House floor, the committee's Republican-supported stimulus package is much preferable to any spending-based Democratic alternative.

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