Expensive Hallmark card

Posted: Oct 22, 2001 12:00 AM
WASHINGTON -- The tax stimulus bill awaiting House action this week is a hodgepodge that only a lobbyist could really love. But among numerous questionable provisions, one stands out: a $17 billion grant to corporate America in the form of retroactive reductions in taxes already paid. The bill approved Oct. 12 by the House Ways and Means Committee disappointed supply-siders and liberals alike. While it is expensive, skeptics on the right and left doubt how much it will help a fading economy further weakened by the Sept. 11 attacks. One high-level conservative government economist calls it an expensive Hallmark card that wishes the economy a speedy recovery but doesn't do much for it. This package, assuming it survives the House, faces a dim future in the Senate. Nevertheless, the bill represents two Washington trends. First, the corporatist mentality has overwhelmed supply-side thinking that was born two decades ago. Second, the long line for corporate bailouts awaits a pot of gold. Willingness to provide government handouts to industries is exemplified by the insurance bailout. Democratic Sen. Christopher Dodd of Connecticut, representing a state famous for insurance companies, has privately expressed amazement at the post-Sept. 11 eagerness to bail out his favorite industry. That spirit infected the Oct. 12 Ways and Means meeting. Rep. Lloyd Doggett, the Texas liberal who is a very junior member of the committee but ranks high in dispensing invective, at one point asked sarcastically if the next tax benefit would go to Osama bin Laden. Sarcasm might be justified in reacting to the way the committee repealed the alternative minimum tax (AMT) for corporations. The AMT, intended to ensure all corporations and individuals pay some tax, has proved to be bad law that unfairly inflicts higher taxes. But in repealing AMT for corporations, Ways and Means Republicans provided retroactive tax cuts dating back to 1986 that amount to an immediate cash grant to corporations, estimated by the official scorers at $17 billion. "I frankly cannot understand the rationale for this," a high-ranking Bush administration official, who asked that his name not be used, told me. While the administration certainly did not endorse AMT retroactivity, it is infected by the same corporatist mindset that dominates congressional Republicans. Corporate lobbyists, led by General Electric's, were preaching to the choir in winning GOP votes for the retroactive provisions. The AMT for individuals was left untouched, part of the general Republican feeling that individuals got their tax cuts earlier this year and now it's time for the corporations. That helps explain the committee's failure to speed up tax cuts for higher-income Americans, whose investments can do the most to revive the economy. The relatively small improvement in capital gains treatment (where major investment incentives are possible) was due to a heroic effort by second-term Rep. Paul Ryan of Wisconsin. The philosophic mindset is a tradeoff of help for corporate business with "rebates" for lowest income Americans who do not pay income taxes, which is redistribution of income but certainly not stimulation of the economy. The lessons of 1981, when the Reagan tax cuts restored incentives and generated growth, seem forgotten and obscured. Jack Kemp of Empower America and Stephen Moore of the Club for Growth are disappointed with the House bill, and so, privately, is House Majority Leader Dick Armey. Armey also predicts that the House bill is likely to be "the high water mark" -- that is, it will be diminished and degraded in the Democratic-controlled Senate. The cup that now looks one-third full may be only one-eighth full very soon. That is one reason for the outrage among House Republicans over Treasury Secretary Paul O'Neill's remarks in Memphis a week ago. Apart from accusing the Ways and Means Committee of engaging in a little "show business," the outspoken treasury chief complained so much about the size of the tax cut that Senate Democrats gained a negotiating edge. That endangers capital gains improvement and other parts of the House bill that make it more than a Hallmark card. The Senate, however, may also get rid of the $17 billion corporate grant that is not the proper direction for tax or economic policy.