Tax cut poses dilemma for Bush

Posted: Sunday, May 04, 2003

WASHINGTON President Bush faces an intriguing predicament as he switches from waging war to promoting his economic stimulus plan. Economic recovery is vital to his 2004 re-election hopes but could be poison for his tax cut.

The more the economy recovers after the U.S.-led war in Iraq, the harder it will be for the president to find congressional support even among loyal Republicans for those big tax cuts. Already, there have been some notable GOP defections.

As a result, Bush and his top aides find themselves often emphasizing the negative about an economy that may be poised for a recovery.

Pushing the plan on Capitol Hill and around the country, administration officials are pointing to dark economic clouds even as some recent reports suggest signs of optimism, including the sharpest gain in four months in consumer confidence in April.

White House officials welcomed those good numbers but warned of other, less favorable, economic data. That includes figures on U.S. manufacturing and jobs that suggest continuing weaknesses.

The administration's message is very mixed,'' said David Wyss, chief economist for Standard & Poor's in New York. From an economic standpoint, if you're having an economic recovery, why do you need stimulus?''

Many members of Congress are asking the same question, especially with the budget deficit likely to soar from the war and reconstruction costs, and from higher spending on homeland security.

The GOP-led Congress already has cut Bush's $726 billion, 10-year tax cut plan to no more than $550 billion. The final figure could wind up at a lot less, with the Senate so far standing firm at a maximum of $350 billion.

Bush's plan suffered a further blow last week when Federal Reserve Chair Alan Greenspan renewed his opposition to tax cuts that would widen the deficit. Greenspan spoke just days after Bush offered to reappoint in him in 2004.

With the war in Iraq over, Greenspan said he is confident economic growth will pick up this year and that it is not clear the economy needs any short-term stimulus.

We already have a lot of stimulus in place,'' he told the House Financial Services Commit-tee.

Bush's tax cut plan is billed as capable creating 1.4 million jobs by the end of next year. The president and his advisers continue to cite job creation as the prime reason for quick passage of the tax cut and they believe the recovery is too weak.

Tax relief is good for families, and good for our entire economy,'' Bush said in recent remarks aimed at lawmakers. The jobs and growth plan I have proposed is fair, it is responsible, it is urgent.''

Economists are divided on the short-term lift of parts of the plan, including the elimination of taxes on corporate dividends for stockholders. That centerpiece idea is a favorite target for Democrats who like to portray the plan as mainly helping the wealthy.

It is not the first time that Bush has talked down the economy. He used the technique during his presidential transition in 2000 and early in his term.

A weakening economy following the bursting of the stock market bubble helped him win bipartisan support in 2001 for a $1.3 trillion tax cut over 10 years.

It all puts Bush in a situation where his best hope for building support for his current tax cut proposal may be an economic downturn. But that would be absolutely the worst possible outcome politically.

When the president's chief of staff, Andrew Card, is asked what is Bush's biggest political challenge, he responds, Jobs, jobs, jobs.''

That was the case, too, for the first President Bush. He won the first Persian Gulf War only to lose the confidence of voters at home after the economy soured. The elder Bush was widely perceived as not doing enough to stimulate the economy.

The younger Bush has been expending considerable energy in trying to make sure history does not repeat itself.

If the president finds himself in a dilemma on the tax cut, Democrats may be in a far worse one.

After all, if the economy recovers, Bush may lose his tax cut. But it would be a costly victory for Democrats if Bush then coasts to re-election.

If the economy turns around, it certainly will be very difficult to beat him,'' said James Thurber, a professor of government at American University.

I think he's learned a lesson from his father about the economy: You've got to have an answer, a clear strategy, even if it's wrong.''

Tom Raum has covered Washington for The Associated Press since 1973, including five presidencies.

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