Not selling the tax cut

Robert Novak
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Posted: Apr 28, 2003 12:00 AM

WASHINGTON -- Treasury Secretary John Snow telephoned me from Quito, Ecuador, last Thursday to tell me a Wall Street Journal report three days earlier was "an utter distortion of what we're doing." That was not news. Snow had spent his South American trip denying the newspaper's report that he was willing to slow down President Bush's cuts in tax rates. Nevertheless, he felt it necessary to call Washington to reiterate that it was all a mistake.

While it truly seems to distort the Treasury chief's position, the Wall Street Journal report has taken on a life of its own. It adds to hesitancy by business to sign on to a plan it fears the Bush administration does not really support. Railroad executive Snow, hired by the president to replace the dysfunctional Paul O'Neill at Treasury, was told to sell this plan to his old CEO colleagues. He has tried hard, but so far failed.

The iron resolve to remove Saddam Hussein from power appears missing from the tax fight. Although George W. Bush comes across as an uncompromising advocate of his tax plan, his lieutenants seem to be negotiating among themselves and liberal Republicans in Congress are defecting. The pro-tax phalanx of Democratic politicians, liberal special interests, academic economists, editorial writers and columnists can sit back and watch Republicans fight among themselves.

This saddens outside Bush advisers who told the president he must replace O'Neill with somebody who believes in Bush's program. Based on Snow's record of four months, these advisers contend that the new secretary does not believe. I think that is incorrect, based on my own conversations with Snow. But last week, he inadvertently complicated the problem.

The Wall Street Journal of April 21 startled the White House with this headline: "Treasury's Snow Spells Out Room for Compromise on Tax-Cut Plan." In an interview with reporter Bob Davis, Snow was quoted as suggesting he might remove only half of the dividend tax and delay cutting the top marginal tax rate from the present 38.6 percent to 36 percent.

The interview was not recorded, but an unofficial "transcript" made from hand-written notes has Snow making this response to delayed rate cuts: "I don't like that idea. The rate cuts have so much oomph to it, in terms of immediate impact on the economy, and the need for oomph in the economy is pretty clear.

. . . Remember, we have already phased these once. So, why do it again?"

When contacted by this column, Davis stressed that "there was no transcript" of the interview and he stood by what was in the newspaper. His report contained no direct Snow quote on delaying lower tax rates.

However, there is no question he suggested the dividend tax might be cut in half. Even Treasury officials admit this was a mistake by the secretary. A reporter could get confused about what was being delayed. Furthermore, Snow should have realized that any suggestion of retreat would become the burden of a news report. His previous service in the Transportation Department never rose higher than assistant secretary, and he is new to big-time Washington politics.

In his telephone conversation from Quito, Snow conceded that the business community is not fully aboard the tax cut bandwagon. Some businessmen do not want to ride a vehicle with uncertain drivers.

Back in Washington this week, Snow must convince everybody that he is not about to cut back on a rate reduction essential to business. He must also deal with prickly House Ways and Means Committee Chairman Bill Thomas, who so far has not told House Republican leaders what he plans to do with the president's proposal. Finally, nobody has yet calculated how to reach the needed 51 Senate votes.

And then there is the daunting prospect of Alan Greenspan testifying before the House Financial Services Committee on Wednesday. The president announced last week he will turn the other cheek to Greenspan's previous thrashing of the Bush tax bill and name him to a fifth term as chairman of the Federal Reserve Board. Nobody could sell the tax cut better than Greenspan, but he also could inflict far greater damage on tax cuts than "distortion" of John Snow's quotes.