Saved by Bill Thomas

Posted: May 05, 2003 12:00 AM

WASHINGTON -- Just as President Bush's tax cut seemed to be going down for good, a well-disguised rescuer appeared. It was Rep. Bill Thomas of Bakersfield, Calif., the imperious chairman of the House Ways and Means Committee. As the White House feared, he was substituting his own ideas for the president's. With Bush unable to sell his repeal of the dividend tax, Thomas was returning to the tried-and-true reduction of capital gains taxes and accelerated business depreciation.

The president's men, suitably horrified, mobilized against the Thomas plan and placed the dreaded "NIH" (Not Invented Here) label on it. That didn't work. The House Republican leadership, until now a juggernaut for George W. Bush, went against him this time. They bought the Thomas plan, which cuts taxes on dividends along with capital gains.

The end of the intellectual battle was signaled when former Bush economic adviser Lawrence Lindsey, principal author of the president's plan before being sacked last year, gave the new plan his blessing. Chatting privately with lawmakers on Capitol Hill late last week, Lindsey referred to Thomas's handiwork as "elegant" and contended it would provide three-fourths the economic wallop of Bush's plan. Actually, other conservative economists say it will pack more immediate punch than the president's proposal.

House Republicans were prepared to rubber-stamp the president's proposal and send it to the Senate until Senate party loyalty broke down. Four defecting GOP senators cut in half the Bush tax reduction. The administration had failed to sell even the business community fully on the dividend tax repeal. The question asked on Capitol Hill: Is this bill dead?

The worst, the White House worried, was yet to come: the announcement of intentions by Chairman Thomas. At age 61, the former junior college political science professor in his 13th term is one of the smartest, best informed, least liked and most feared members of Congress. Conservatives, either in Southern California (where he runs his own political organization) or on Capitol Hill (where he is in his third year as Ways and Means chairman), never have trusted him. Although Thomas had been a faithful Bush lieutenant until now, Bush strategists feared where he would take the fading tax bill.

Where he actually went was a place where House conservatives, unsuccessfully, had tried to push the president: the supply-side standby of lower capital gains rates. Rep. David Dreier of California, the powerful House Rules Committee chairman, in early January introduced a modified tax cut. "I love it," House Majority Leader Tom DeLay told me. Joining the capital gains cabal was none other than Bill Thomas.

Thomas tried to explain to the White House that so many more taxpayers were touched by capital gains than dividends that it will be much easier to sell. No success. Thomas got the same blank stares from the administration that Dreier had been receiving from Bush economic advisers going back to the 2000 campaign.

That was the situation a week ago when Thomas unveiled his tax plan. Had the Senate Republicans unified behind the Bush bill, the House GOP leadership also would have stuck with the president. But things had changed. With the Senate a shambles, the party's Republican leaders reached out to what seemed a much more appealing proposal by Thomas.

The Ways and Means chairman tried to explain his plan to Treasury Secretary John Snow, Commerce Secretary Donald Evans and National Economic Adviser Stephen Friedman. They responded that their bill was still better. Thomas then subjected the Cabinet members to the mirthless smile and steady stare that long has intimidated colleagues on the Hill. "It's not on the table anymore," he told them.

What's on the table for House passage is the Thomas bill, but the Senate remains in utter confusion. Sen. Chuck Grassley of Iowa, Thomas's counterpart as chairman of the Senate Finance Committee, is committed to a scaled down tax package but is trying to stretch it by offsetting special tax increases against tax cuts. Thomas thinks that's a lot harder than starting from scratch to build a majority voting for the dependable Republican watchword of lower capital gains rates.