Sen. Charles Grassley, the chairman of the tax-writing Finance Committee, now thinks Congress will pass most of President Bush’s accelerated tax cuts in the next month or two.
This isn’t a Pollyanna wish from a cockeyed optimist. The cunning Iowa lawmaker is a self-professed pessimist. “It’s my nature,” he says. But he is not only confident Mr. Bush will get the core of his stimulus plan, he says it will probably come up for a final vote sometime in late March or early April.
That should come as good news to the business community, investors, and anyone who is looking for a job. With the economy barely growing in the last quarter, and Wall Street still in a funk over Iraq, House and Senate Republicans want to pass Mr. Bush’s stimulus bill “sooner rather than later,” Mr. Grassley says.
The Iowa lawmaker is so intent on moving swiftly on the tax-cut bill in his committee that he plans to begin work on it while Ways and Means Committee Chairman Bill Thomas is drafting and moving his own version through the House.
“That way we will be well along our way by the time the House votes and passes its bill,” Mr. Grassley told me in a wide-ranging interview this week.
Washington, of course, is full of naysayers, on Capitol Hill and among the pundits. They are saying the bulk of Mr. Bush’s plan, including elimination of the stock dividends tax and cutting all the top rates this year, will not pass or will be substantially watered down.
That’s what they said about the president’s $1.35 trillion tax cut plan in 2001, but Mr. Bush got most of what he wanted. Mr. Grassley thinks that’s what will happen this time, perhaps with some exceptions.
What will likely pass will be “anything that is refundable, anything that is going to put money in people’s pockets because Democrats like that.”
That means doubling the child tax credit to $1,000, eliminating the marriage tax penalty and implementing most of the administration’s previously enacted income tax rate cuts this year.
However, abolishing the entire dividend tax and dropping the top tax rate to 35 percent remain problematic, Mr. Grassley says. He is for the whole plan, but getting these two provisions through a narrowly divided Senate “will be tough.” The early thinking in the party’s inner sanctums is that the dividend tax cut and possibly the top rate cut may be stretched out to win a couple of Democratic swing votes.
Mr. Grassley had just returned from the Republican weekend retreat at the posh Greenbrier resort in White Sulphur Springs, W.Va., where lawmakers plotted strategy behind closed doors to overcome Democratic opposition to deeper and faster tax cuts.
“There was some concern about the deficit,” but the overriding feeling “was that the deficit is less of a problem if we stimulate the economy and get the tax cuts right now.”
“Most of the tax rates will be accelerated,” along with deeper expensing and depreciation write-offs for small businesses, he told me. “Most of the Republicans have bought into this,” and some Democrats, too, he says. He declines to name them,but says he is “working very closely” with Montana’s Sen. Max Baucus, the panel’s ranking Democrat.
At the same time, the mood among Republican lawmakers was upbeat about the economy’s future. “There was a very positive feeling that if the war in Iraq is relatively quick and short, that between now and the next elections, there is going to be a dramatic upturn in the economy,” he said.
But that is not going to deter the White House from its plans on tax cuts, which are as much about long-term growth as they are about a short-term booster shot to get things rolling.
Meantime, several things are working in Mr. Bush’s favor that will affect the whole complexion of the tax cut debate.
A number of economic indicators show that the economy is in the midst of a slow comeback. Job creation is up modestly, with the unemployment rate falling to 5.7 percent in January. Manufacturing orders are improving.
Corporate earnings are rising.
Federal Reserve Board Chairman Alan Greenspan tried to calm the jitters on Wall Street Tuesday by expressing the Fed’s belief that the economy should improve once the uncertainty over Iraq is behind us.
Mr. Greenspan, who has long opposed the double taxation on dividends, is behind Mr. Bush’s proposal to boost badly needed capital investment.
As for the looming deficits, the U.S. Treasury just announced it was auctioning off new short-term bills and notes to raise the cash it needs to cover its revenue shortfall. With the Feds paying a little more than 1 percent, the loans couldn’t be cheaper.
Borrowing “an additional $100 billion to invest in lower tax rates and a better functioning economy is a move in the right direction,” says John H. Makin, a resident economist at the American Enterprise Institute.
“Given the still weakened state of the economy and the limited additional options available to monetary policy, we shall need more tax cutting, not less,” Mr. Makin said in recent analysis.
So let the tax-cutting begin.
Donald Lambro, chief political correspondent for The Washington Times, is a nationally syndicated columnist.