- The Washington Times - Tuesday, January 14, 2003

WASHINGTON, Jan. 14 (UPI) — Sen. Chuck Grassley, R-Iowa, told United Press International Monday that Congress should fully fund President George W. Bush's proposed $600 billion in tax cuts, the needs of the armed forces in war and homeland security.

In an interview in his office on Capitol Hill, the incoming chairman of the Senate Finance Committee rejected criticism that Bush's $674 billion stimulus package and war and homeland security costs that might hit $200 billion would cause an unacceptable national deficit.

"We're in a war. A strong economy is necessary for fighting the war on terrorism and maybe in Iraq. When you send people into battle you give them whatever it takes to win or you don't go to war. And if we'd worried about a deficit during World War II, Hitler would have been in New York," the Iowa Republican told United Press International.

"There are only three excuses for a deficit," he said. "One is war. The second one, since Sept. 11, is homeland security, and thirdly, is when the economy is in trouble. And all three of those are present now," he said.

Grassley said that "you don't get out of a deficit situation by raising taxes, that's never going to get you out of it. You raise the economy by growing the economy." He said the president's stimulus package is expected to raise the gross national product to a growth rate of 3.5 percent, which would be enough to create jobs. He acknowledged in the first year the improvement would not wipe out unemployment.

Unemployment at present hovers at 6 percent or around 8 million Americans unemployed.

Under Republican control of the Senate, Grassley becomes the chairman of the Senate Finance Committee, where Bush's economic stimulus package will be considered and also where confirmation hearings for Bush's Treasury Secretary-designate John Snow will be held.

Although Grassley concedes that the plan's centerpiece issue of cutting dividend taxes may encounter opposition — though not agreeing with the criticisms - he says the plan's accelerations of the 2001 tax cuts will garner more bipartisan support based on the potential stimulative effects to the U.S. economy.

"There is no doubt about the reduction of the marginal tax rate — speeding that up — as being very stimulative," Grassley said.

Alluding to economic history, Grassley noted that implanting tax cuts faster rather than phasing them in was more economically effective.

"Remember from 20 years ago, one of the reasons economist say that we had the recession of 1982 was because we phased in the reduction of the '81 tax bill (the Reagan tax cuts) and we should not make that mistake again."

The senator added that cuts in the tax rates would benefit many individual-owned small businesses, noting that any such cut would be of assistance to "self-employed persons, small entrepreneurs."

Under the Bush administration's proposal, the reductions in income tax rates in excess of 15 percent scheduled for 2004 and 2006 would be moved forward to the current year, resulting in new marginal tax rates of 25 percent, 28 percent, 33 percent and 35 percent (down from 27 percent, 30 percent, 35 percent and 38.6 percent).

Critics of the Bush plan have called for a temporary holiday on payroll taxes, which go into the Social Security system, in order to benefit the working poor. Asked about this, Grassley was adamantly against it.

"I'm very reluctant to have a holiday on the payroll tax, considering the fact that it can used by a demagogue so easily, that you are hurting senior citizens, the viability of Social Security on one hand, and secondly, it seems to me there are better ways to do it," he said.

"Also, there (are) some (similar) rebates, in the president's bill, in regards to the child credit," Grassley said.

The Bush economic package call for increasing the amount of the child tax credit to $1,000 in 2003 (from $600), accelerating a scheduled phase-in over the period between 2005 and 2010. In 2003, the increased amount of the child tax credit will be paid in advance beginning in July 2003 on the basis of information on the taxpayer's 2002 tax return filed in 2003.

Grassley noted that under the Bush plan, advance payments would be made in a manner similar to the advance payment checks that were issued in 2001.

The senator came out in favor of the Bush provision for Personal Re-employment Accounts that would provide unemployed workers with up to $3,000 to use for job training, child care, transportation, moving costs, or other expenses associated with finding a new job. But he would not commit to making such a program a permanent part of U.S. unemployment benefits, saying it would initially be "experimental."

The Bush plan would give states $3.6 billion to fund these accounts. The program would be administered through the One Stop Career Center system and would work through existing state unemployment systems to deliver these benefits.

Grassley said he did not believe the stimulus package was the place for the federal government to assist states facing budget shortfalls. "I don't know how Washington can solve the problems of 50 different states that in 50 different ways have had budget problems."

In fact, Grassley pointed out, some five states have avoided critical budget short falls. "I don't know to what extent it's right for us in Washington to tax people in those states to make up for problems that other states have."

"I don't know how we deal with 45 budget problems arrived at in different ways," he said. He said that he felt the better way to assist states with budget shortfalls is by increasing federal participation in programs like Medicaid where "the federal government has a responsibility."

Estimates are that state governments are collectively facing budget deficits of $60 billion to $80 billion for state fiscal year 2004, which begins June 30.

Grassley acknowledged that, like the federal government, states had difficulties caused by the economic downturn and the Sept. 11, 2001, terrorist attacks.

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