$1 Trillion Tax Cut?

Posted: Feb 28, 2003 12:00 AM
With the President’s tax cut now introduced in the House, the potential price tag of a House-modified package being bandied about by some insiders is an eye-popping one: $1 trillion. Something on that scale would be roughly 50 percent bigger than the size of the President’s proposal, and could also trigger a feeding frenzy among members and lobbyists looking to get new provisions added to the House bill. But if the House does pass a $1 trillion tax cut, the question about a tax cut becoming law this year would shift from “if?” to “how big?”. Almost immediately after the announcement of the tax cut, many in the media declared the proposal dead on arrival. House Ways and Means Chairman Bill Thomas (R-CA), whose committee has jurisdiction over all tax cuts, didn’t help matters when he appeared underwhelmed by the President’s tax initiatives. But now Thomas is gearing up for a concerted effort to enact tax reform, even if it doesn’t end up exactly as the White House proposed. Starting next week, there will be a week’s worth of hearings, and “everything will be on the table,” notes a senior GOP House staffer. While some or all of the President’s provisions may be altered, it is unlikely that any would be scrapped. In fact, House GOP staffers and outside groups familiar with the back-room discussions indicate that the final bill that the House passes could be much larger than what the President sent to Capitol Hill. Shortly after the President announced his proposal, the White House let House Majority Leader Tom Delay (R-TX) know that he should feel free to ramp up the tax cutting—and it looks that process will start in Thomas’ committee. The biggest change could be the addition of full business expensing, which would allow companies to immediately write off equipment and factory expenses. Backers of expensing believe that this would have a potent economic impact immediately, as companies will likely take the tax bait to purchase more equipment, which leads to increased productivity for the company and higher economic growth for the country. If expensing doesn’t make the final cut, senior GOP House staffers suggest that accelerated depreciation or research and development tax credits could. On the docket for next week’s hearings is the centerpiece of Bush’s plan: the elimination of the double taxation of dividends. But Chairman Thomas wants to examine eliminating dividend taxes on the corporate side as opposed to the shareholder side, as the President proposed. Although it might make for a stirring academic debate, the President’s position on this is pretty much a lock politically. Explains Americans for Tax Reform president Grover Norquist, “Economically, it’s better to do it from the corporate side, but then it becomes a less populist issue. Today, 70% of voters get dividends, which means liberals can’t get away with saying it’s a ‘tax cut for the rich.’” Regardless of the details of the House’s final bill, the real challenge will be in the Senate. In that chamber, media reports of disarray are somewhat more grounded in reality. Quips one senior GOP Senate staffer, “I’d rather herd cats than try to get 51 Senators behind one tax plan.” But having a $1 trillion gun to their head could make Senators think twice before dropping the ball entirely on sizeable tax cuts. The tax cut will be making its way to the Senate after it clears the House, which will most likely happen at the end of March. The politics of the gentlemen’s club is in too much flux to predict the exact outcome—but there is almost no chance that the upper chamber would embrace anything close to a $1 trillion tax cut. Even though a $1 trillion tax cut would never make it to the President’s desk, the House passing a package of that size would serve as a reverse triangulation—one senior GOP House staffer said Delay calls it “willful triangulation”—for the White House, making Bush’s original proposal look modest by comparison. When asked for the official line about how the President feels about efforts in the House to expand the tax cut, the White House press office said, “Our plan is our plan.” Maybe not for long.