- The Washington Times - Wednesday, January 29, 2003

Democrats and Republicans on the Senate Finance Committee yesterday backed acceleration of the 2001 tax cuts while expressing skepticism about President Bush's proposed dividend tax cut.
At a hearing on John W. Snow's nomination to become Treasury secretary, many committee members said they favored tax cuts that would provide immediate punch for the foundering economy but questioned whether the dividend proposal would do much to help either the economy or the stock market.
"Accelerating the rate cuts makes some sense," said Sen. Max Baucus of Montana, the committee's ranking Democrat, telling Mr. Snow that he and other committee Democrats wanted to work with the administration. Committee Chairman Charles E. Grassley, Iowa Republican, said the committee would draft a bipartisan tax plan.
The Democrats and several Republicans said they could not support a plan that would drive up the budget deficit with a big tax cut at a time when Congress might have to approve large spending increases to fund a war against Iraq, homeland security, a prescription drug plan for seniors and other goals embraced by both parties.
"The theory is we're going to grow out of this," said Mr. Baucus, comparing Mr. Bush's plan to President Reagan's tax cut in 1982. The Reagan plan helped stimulate growth, he said, but it also helped drive the deficit to triple-digit levels because it came at a time of escalating spending on defense and entitlements.
"We need to get the greatest bang for the buck," said Sen. Olympia J. Snowe, Maine Republican, who also expressed concern about burgeoning deficits.
Several legislators said they were influenced by the advice of Federal Reserve Chairman Alan Greenspan, who told them at a private meeting last week they should be cautious about driving up deficits with a tax cut. Mr. Bush's budget to be released on Monday is expected to show record deficits of more than $300 billion, partly as a result of the tax cuts.
Mrs. Snowe endorsed Mr. Bush's proposed tax cuts for small businesses, which she said would create the most jobs. The plan includes an equipment expensing provision and rate cuts for upper-income individuals who own businesses.
But she said the committee should "look very carefully at the long-term effect and stimulative value" of the dividend tax cut. She noted that most Americans would not benefit from the dividend exemption because it would not affect stock investments in already-exempt 401(k) retirement plans.
Two committee Democrats who voted for Mr. Bush's 2001 tax cuts, Sen. John B. Breaux of Louisiana and Sen. Blanche Lincoln or Arkansas, said they were reluctant to support another big cut. They were especially skeptical of the dividend plan, noting that only 8 percent of Louisiana residents would benefit.
While Mr. Snow and conservative Republicans on the committee strongly defended the dividend proposal, Mr. Grassley questioned whether it would bolster the stock market.
The stock market soared early this month when Mr. Bush announced the plan, but then fell back to three-month lows raising doubts about whether any market gains would be lasting.
Mr. Snow assured Mr. Grassley that Wall Street analysts believe "it's bound to have a positive effect on the stock market." He suggested that some of the market's recent decline was the result of signs that Congress would not support the dividend plan.
Mr. Snow predicted that the exemption would encourage companies who had not issued dividends to start the practice, as Microsoft Corp. recently did.
He pleaded with Mr. Baucus to support the dividend exemption as "good economic policy." But the senator said he has not been able to find support for the proposal even among business lobbyists.
Other than a smattering of economists, Mr. Baucus said, "most people think this plan is not right." Among other problems, it is "unimaginably complex," he said.
Mr. Snow, who joked frequently with committee members and appeared more eloquent and tactful than his predecessor, Paul H. O'Neill, was greeted warmly and seemed headed for prompt confirmation.
In response to questions about his generous compensation package as chief executive of CSX Corp., Mr. Snow revealed that he would forgo between $25 million and $50 million in benefits mostly from unexercised stock options to take the Treasury job.
He quickly dispelled doubts among currency traders about whether he would be a strong defender of the dollar by issuing a statement in support of the strong-dollar policy of his predecessors.
He suggested that the dollar's decline of nearly 20 percent against six other major currencies in the last year was the result of weakness and uncertainty surrounding the U.S. economy. He said the currency should strengthen as the economy rebounds, and that is one reason why the administration is pushing growth legislation.
Mr. Snow's remarks sparked a minor rally in the dollar market, snapping a 10-day losing streak against the euro and drawing down gold prices from their six-year highs. Investors increasingly have been piling into gold and other safe-haven instruments out of concern about the effect of an Iraqi war on the U.S. economy.

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