Bush's tax dictate

Posted: May 22, 2003 12:00 AM

WASHINGTON -- Late Monday afternoon, leading Republicans of the House and Senate clenched their teeth as they took chauffeur-driven limousines down Pennsylvania Avenue to the White House. They were primed for a long struggle with each other and President Bush over details of tax cuts. Less than an hour later, the lawmakers were on their way back up Capitol Hill -- their tails between their legs.

George W. Bush had again laid down the law to GOP satraps. Just as he insisted that the post-2002 election session of Congress finish homeland security legislation, the president now demanded a completed tax bill on his desk before the Memorial Day break. What's more, he dictated the bill's final details -- vetoing the Senate's quest for added revenue by taxing American businessmen overseas, approving the Senate's subsidy for state and local governments.

This capped a virtuoso performance by Bush. With the end of the Iraq war, the president's tax-cut tour reversed public opinion polls and won over key senators. Nevertheless, while both Senate and House versions gave Bush most of what he wanted, a long difficult struggle impended.

House Majority Leader Tom DeLay and House Ways and Means Committee Chairman Bill Thomas were in no mood for compromise as they prepared for Monday's 5:30 p.m. meeting with Bush. Furthermore, they were backed by House Speaker Dennis Hastert.

The House leaders were determined to keep a cut in the capital gains tax, which was not contained in the Senate or administration versions. They would oppose the Senate's "pay-fors" (tax increases to cover tax cuts) and aid for state and local governments, and would not tolerate the Senate's $350 billion tax cut limit -- half what Bush requested.

Furthermore, there was bad blood between Senate and House Republicans. The House leaders were still bitter that Senate Majority Leader Bill Frist had not informed of them of his commitment to the $350 billion, 10-year tax cut limit. Thomas has low regard for his Senate tax-writing counterpart, Finance Committee Chairman Charles Grassley, and did not relish a long, tedious Senate-House conference on the final version of the bill (presided over by Grassley).

Instead, Thomas and DeLay demanded the "ping-pong" method of resolving differences between the two chambers. The House would amend the Senate bill to its liking and send it back to the Senate. Ping. The Senate would rewrite it and send it back to the House. Pong. Eventually, they would agree on something, but the brutal process could delay any bill well into June.

Bush, however, was having no part of it, contending the economy needs help now. Nor did he want a long bargaining session Monday night. A State dinner (for visiting Philippine President Gloria Arroyo) was to begin at the White House at 7:30. Three of the lawmakers at the meeting -- Frist, DeLay and Senate Majority Whip Mitch McConnell -- had to change into black tie for the dinner. Short of time, the president did not negotiate. He dictated.

There would be neither ping nor pong; there would be old-fashioned Senate-House negotiations. The $350 billion price tag would stand, but front-loading of the tax cuts in the early years made the cost estimate meaningless. The Senate "pay-for" requiring American businessmen abroad to pay U.S. income taxes would be eliminated, but the Senate's state and local aid package would remain. Extended unemployment benefits would be enacted in a separate bill.

But how to choose between House reduction of capital gains taxes and Senate exclusion of taxes on dividend income? The six Republican leaders left the White House Monday believing Bush wanted both plans in the bill. But Bush on Tuesday, after consulting Treasury Secretary John Snow, became convinced that Thomas was correct Monday in depicting parliamentary impediments to dividend tax repeal. The president telephoned Frist, supporting Thomas's reduced tax rates on both capital gains and dividends.

That disappointed supply-sider Stephen Moore of the Club for Growth, but he still is enthusiastic about a front-loaded bill that reduces taxes on investment. High-taxers who hate this bill know they have a lost a big battle. "I think this an enormous political victory for President Bush," Gene Sperling, an architect of the Clinton tax increase, said on CNN Sunday. "He's gotten virtually everything he wants." And that was the day before the president laid down the law to the Congressional Republicans."