- The Washington Times - Tuesday, September 11, 2001

Senate Minority Leader Trent Lott said yesterday he could conceive of trading a cut in the capital-gains-tax rate for a reduction in payroll taxes.

Key Democrats over the weekend suggested cutting payroll taxes, which are used to fund Social Security, as a way to help the ailing economy.

"If you are trying to get money into working Americans' pockets quickly, that is one option to consider," Mr. Lott, Mississippi Republican, said yesterday morning.

Mr. Lott said Congress needs "to look at some other additional spur" for the economy, particularly a cut in the capital-gains rate. As for linking a cut in the capital-gains-tax rate with a payroll-tax cut, Mr. Lott said he is not advocating the idea, "but I'd be open to considering that."

Speaking on "Fox News Sunday," Senate Budget Committee Chairman Kent Conrad said "fiscal stimulus can take one of two forms. It can be spending or additional tax cuts. And we may need additional tax cuts to give lift to this economy if we see continued weakness." Asked if a cut in the payroll tax would qualify as the kind of relief he is seeking, the North Dakota Democrat said, "Yes, absolutely."

Charles Jarvis, chairman of United Seniors Association, said he would prefer a payroll-tax cut be linked to the creation of new personal retirement accounts.

Key Democrats calling for the tax cut was a "powerful signal" that a second bipartisan tax-cut bill would have a chance this year, Mr. Jarvis said.

But others, including Republicans and Democrats, were quick to criticize the idea, arguing that cutting the payroll tax would hurt the long-term solvency of the Social Security trust fund.

Sen. Charles E. Grassley, Iowa Republican, said he wants the capital-gains-tax rate cut from 20 percent to 15 percent, and thinks there is a good chance that could happen this year. But, he said, payroll taxes should be reserved to pay the transition costs of reforming Social Security.

Urban Institute President Robert Reischauer said cutting the payroll tax would be an effective tool for stimulating the economy but would take Social Security in the wrong direction.

Mr. Reischauer said the proposal, and others like it, are fueled by lawmakers' desire to "do something" about the economy.

Lawmakers opposed to the idea said that the best thing to do, for now, is nothing.

Senate Finance Committee Chairman Max Baucus, Montana Democrat, suggested taking a "deep breath" and letting monetary policy, coupled with the tax cuts Congress already has passed, take effect.

"If we find ourselves [in] some further recession, then we could revisit," Mr. Baucus said.

Sen. John B. Breaux, Louisiana Democrat, sounded a similar theme. He predicted that neither a capital-gains-tax cut nor a payroll-tax cut would pass this year. "These are just not things that have any legs from a political standpoint," Mr. Breaux said.

Mr. Conrad tried to take some of the sting out of his proposal yesterday, talking first to reporters, then to a growing crowd of senators who wanted to hear more about his idea.

Mr. Conrad clarified that taxpayers would receive from general revenues rebates equal to their payroll taxes, but the Social Security trust fund still would be credited for the payroll taxes.

Sen. Bob Graham, Florida Democrat, listened to Mr. Conrad's explanation, then walked away.

If payroll taxes are cut, that hurts Social Security, he said.

And if general revenues are used for a rebate, then the budget would be thrown out of balance and payroll taxes would be used to pay for other programs.

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