- The Washington Times - Friday, April 18, 2003

President George W. Bush gave a much-needed speech Tuesday in the Rose Garden of the White House. The stock market rallied at least temporarily as it heard the president's firm commitment to not only protecting America from foreign dangers, but to fighting hard for a tax-cut package that will grow the economy, increase investment, and create new jobs.

"A free Iraq," Mr. Bush said, "will be an example of reform and progress to all the Middle East." But he also made it clear that he has reform and progress in mind when it comes to the economy and job creation at home. In particular, he was emphatic that more investment will create jobs, and with this logic he firmly reiterated his desire to remove the double tax on dividends. "Taxing corporate income once is fair," he said, "but it is not fair to tax it twice."

On the dividend-tax-cut proposal, which remains the centerpiece of the president's plan, the White House is now looking at three options a result of the reality that the final tax package will come in around $450 billion.

First, there's a 100 percent dividend exclusion, priced at $345 billion in static revenue terms. But this option now seems less likely as a result of opposition in the Senate. A second, and more plausible, possibility is a 50 percent dividend exclusion, priced just below $250 billion. But a third idea, taxing dividends at the same marginal rate as capital gains, would cost about the same.

House Ways and Means Chairman Bill Thomas, California Republican, is considering bringing dividend tax rates in line with capital-gains rates at a single, lower rate of 18 percent. This would carry a 10-year price tag of only $10 billion for the slight decline in the 20 percent cap-gains tax. On dividends, this would effectively reduce the tax rate to about half of the top personal income-tax rate, which is used to levy dividends. That rate is now 38.6 percent, but it's scheduled to slip to 35 percent in the president's package.

Additionally, House and Senate tax writers are moving toward boosting the cash bonus for faster business depreciation writeoffs. The bonus passed a year ago was a temporary 30 percent, but it could now go to at least 50 percent.

Should a 50 percent dividend exclusion or a new tax-rate parity between cap-gains and dividends be put in place along with lower personal tax rates, marriage-penalty relief, a higher tax credit for children, and more liberal writeoffs on equipment expensing for large and small businesses this streamlined tax-cut package would still deliver the desired economic results: more investment and consumption.

Numerous estimates from the government, think tanks, and Wall Street suggest that this sort of package might add nearly 1 percent to the annual growth of gross domestic product the Congressional Budget Office estimates that GDP will rise by $150 trillion over the next 10 years and also create roughly 1.5 million new jobs each year through 2007.

While the president may not get all he's asking for, this would still be quite an achievement. It would also mark the third tax cut passed thus far by George W. Bush a far cry from his father's economy-retarding tax-increase policy 12 years ago.

A recent NBC News/Wall Street Journal poll shows Mr. Bush with a huge 71 percent approval rating. On tax policy, respondents had more confidence in Mr. Bush and the GOP (52 percent) than in congressional Democrats (38 percent).

It seems that the president's political clout, even on taxes and the economy, is greater than many media pundits would have us believe.

The White House is now putting together a series of presidential speeches to sell the tax-cut package. This could even include a special session of Congress where Mr. Bush would announce the formal end of the Iraq war and make the case for tax cuts. Essentially, the president intends to go over the heads of congressmen and communicate directly with the public in the hope that grass-roots voters will pressure elected representatives for a big tax cut. This sort of strategy was used successfully by Ronald Reagan in the 1980s when he slashed the top income-tax rate to 28 percent from 70 percent.

Beltway commentators continue to underestimate Mr. Bush's political prowess, but he remains committed to his big-picture goals of international peace and domestic prosperity. As the president succeeds on each front, a landslide victory in next year's election looks more and more likely for Mr. Bush and the GOP.

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