- The Washington Times - Sunday, January 12, 2003

STANFORD, Calif. President Bush's tax-cutting stimulus plan will benefit a number of voter groups that will be pivotal to his re-election prospects, some of his advisers say.
Those advisers also say that the class-warfare rhetoric being used by Democrats against Mr. Bush's tax cuts do not have much effect on voters anymore. The cuts will lay the groundwork for a much more sweeping tax-reform plan that he intends to propose if he wins a second term, they say.
"I don't believe that their demagoguery against the tax cuts works. Al Gore tried it in the 2000 campaign and the public didn't buy it," said John Cogan, one of several economic advisers at the Hoover Institution who has helped Mr. Bush put his original tax-cut plan together.
"Americans are very mobile income-wise. They're also very optimistic and believe that they will climb the income scale into the higher brackets. The class-warfare attacks simply do not work on them," Mr. Cogan said in an interview.
Mr. Bush said yesterday that his tax-cut proposals would inject $59 billion into the U.S. economy by the end of 2003. The president also proposed more funding to tackle corporate corruption as a way to increase investor confidence.
Mr. Bush announced in his weekly radio address that he would ask Congress to approve an $842 million 2004 budget for the Securities and Exchange Commission nearly double the 2002 level. The SEC was given $438 million for 2002.
For the current fiscal year, the administration asked for $568 million. The SEC, like most government agencies, is still functioning under 2002 funding levels because lawmakers have not approved spending for the 2003 budget year which began Oct. 1.
Mr. Bush also said his budget request, due to lawmakers at the beginning of February, would encompass an additional $25 million for the Justice Department to expand corporate fraud investigations. The money would fund 118 new FBI positions, Mr. Bush said.
"The SEC and the Justice Department are the referees of corporate conduct," the president said. "Under my budget, they will have every resource they need to enforce the laws that punish fraud and protect investors."
Earlier this week, Mr. Bush unveiled a 10-year, $670 billion tax-cut program meant to stimulate the sluggish economy. The White House yesterday arrived at the $59 billion figure for 2003 by assuming lawmakers would act relatively quickly on the package.
New Mexico Gov. Bill Richardson, while engaged in talks with North Korean officials in his home state, also delivered the Democrats' radio response yesterday.
Democrats have criticized Mr. Bush's stimulus package, saying it disproportionately favors the wealthy and does little to boost short-term economic growth.
Some governors have also speculated that Mr. Bush's proposal to eliminate taxes on stock dividends could cost states several billion dollars because of the effect on state taxes.
Mr. Richardson yesterday promoted a $50 billion alternative plan from the Democratic Governors' Association that would, among other things, provide temporary tax relief and short-term federal assistance to deficit-burdened states.
Although the immediate policy focus and debate in the past week has been on the economic rationale behind the president's latest tax-cut proposals, advisers said that each part of Mr. Bush's tax-cut agenda appeals to major parts of his party's political base or to larger voter cross-sections in the electorate.
"If he gets the accelerated tax rate cuts through, the [political] dynamics change dramatically," said Martin Anderson, another Bush domestic policy adviser at the institution and a member of the president's original tax-cut policy team led by former White House economic adviser Lawrence Lindsey.
"Even if he does not get all of what he wants on eliminating the tax on stock dividends, if he gets the income tax cuts, it's a total victory. He wins big. This will mean a reduction in the marginal tax rates for every American taxpayer," Mr. Anderson said.
He and Mr. Cogan also acknowledged that the rest of Mr. Bush's accelerated tax-cut plan will help not only different parts of the economy but specific parts of the voting population as well.
Among them:
Increasing the child tax credit this year by $400: "The child credit may not be great tax policy, but it's pretty efficient at helping middle income taxpayers with children," Mr. Cogan said. Mr. Bush's job-approval polls show that some of his strongest political support comes from married couples, particularly those with children.
Working married couples: Tax changes to eliminate the so-called marriage penalty paid by married couples who filed jointly will affect 35 million of them. "Middle-income taxpayers will get the bulk of this tax change," Mr. Cogan said.
Elderly retirees: Out of an estimated 35 million people who receive taxable dividend income, 10 million are seniors in retirement a strategic voting group that shows up in large numbers at the polls and that shifted slightly to the Republicans in the last election. Notably, they depend upon dividends for much of their income.
Entrepreneurs forming start-up companies: New start-up businesses will be one of the biggest beneficiaries from increased investment capital sparked by the dividends tax cut, Hoover economists say.
Small businesses: Tripling the $25,000 that small-business owners can write off for the purchase of equipment will affect nearly 25 million business people.
Mr. Bush's decision to seek immediate implementation of his 10-year tax cuts this year was greeted with a huge sigh of relief from many of his advisers at the institution who were uncomfortable with the long phase-in time.
"Of the tax cuts Bush got passed in 2001, only about 7 percent to 8 percent have taken effect. One-third of them won't happen until after 2004," Mr. Anderson said.
"This is nutty," added Mr. Anderson, who was President Ronald Reagan's first domestic policy adviser.
Mr. Cogan, who is frequently called on by the White House for advice on economic and fiscal issues, said that Mr. Bush's new plan was seen as the precursor to a much more ambitious reform effort following the 2004 elections.
"Overhauling the tax code is going to be a second-term issue. The first job is to get the tax rates down and get the economy moving faster. This is a very strong step toward tax reform," Mr. Cogan said.

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