Be prepared: Taxes going up

Posted: Sunday, September 05, 2004

NEW YORK At their national convention, Republicans were long on rhetoric and short on specifics on how to pay for an economic agenda in a second Bush administration.

One reason is that President Bush could end up having to back a tax increase, just as his father did.

But nobody wanted to spoil the Madison Square Garden party by mentioning such unpleasantries. After all, Republicans are insisting that Democrat John Kerry is the candidate who will increase taxes.

''To those critics who are so pessimistic about our economy, I say: 'Don't be economic girlie men!''' said California Gov. Arnold Schwarzenegger, reprising a phrase he used to scold state Democratic legislators.

That drew hearty laughter from the convention audience. Yet there is little humor to be had from a close look at budget realities.

''Taxes are going up next year no matter who wins the presidency in November,'' concluded conservative economist Bruce Bartlett, who advised both Ronald Reagan and the first President Bush.

''It's out of the hands of politicians,'' Bartlett said.

The annual $400 billion deficit leaves little room to maneuver. The shortfall was exacerbated by two earlier tax cuts that Bush pushed through as well as rising costs for Iraq, Afghanistan, homeland security and a major expansion Medicare.

Furthermore, the Federal Reserve has embarked on a course of raising interest rates from their recent 40-year lows. Higher interest rates combined with a continued weak dollar will put more pressure on the government's balance sheet.

Kerry has said he would roll back tax cuts for higher-income people and use the savings to pay for an ambitious health care program rather than to lower the deficit.

Both Bush and Kerry have said they would cut the deficit in half in four years; neither has spelled out how that would happen.

In his acceptance speech at the convention, Bush said that in a second term he would lead a bipartisan drive ''to reform and simplify'' the federal income tax. He said it was ''a complicated mess filled with special interest loopholes.''

The president gave no hint of what path he would follow. Many conservatives are pushing for a shift away from income and toward consumption taxes.

But Bush's offhand comment this summer that a national sales tax warranted serious consideration drew howls from Democrats and many Republicans. The idea was dropped.

Since taking office in January 2001, Bush has been burdened with a lackluster economy.

Friday's eagerly awaited unemployment report by the Labor Department did nothing to change the outlook. It showed that 144,000 jobs were created in August. That was somewhat better when compared with the previous two months, but slightly below what economists were forecasting.

Bush still is on track to become the first president since Herbert Hoover in the Great Depression to lose jobs under his watch. Today, there are about 1 million fewer jobs than when Bush moved into the White House.

''It's now impossible for him to break even'' on job creation, said Roger Altman, a Treasury official in the Clinton administration and now a Kerry adviser. ''They don't want to talk about it (the economy) because it's their weak spot,'' Altman said.

Kerry aides are quick to put a negative spin on every new piece of economic data. For instance, they claim job losses under Bush total 1.6 million.

But the Democrat's advisers only count private-sector jobs, ignoring the hundreds of thousands of government jobs created under Bush.

Polls do show voters are wary of Bush's handling of the economy, even as his numbers have risen recently in categories such as protecting the nation.

In his convention speech, Bush laid out an expensive economic agenda for a second term. He did not offer any bold new strokes, as some people had expected. Instead, the ideas were mostly earlier initiatives that were dusted off. His focus before the GOP delegates was on the fight against terrorism and other national security efforts.

His recycled domestic proposals included tax incentives to help people buy homes, start small businesses and get job training. Bush also would give people more say in managing their own health care and retirement finances.

Bush revived a proposal to allow younger workers to divert some of their Social Security payroll taxes into 401(K)-like investment funds.

The idea won few fans in Congress when Bush proposed it in 2001, drawing outright hostility from Democrats and skepticism from many Republicans. Bush stopped pushing it after a post-Sept. 11 dip in the stock market.

At the convention, Bush was silent on how to pay for any of his second-term proposals.

''A presidential election is a contest for the future,'' Bush told the party faithful. But on the economic front, most convention speakers could not help but look back to what Vice President Dick Cheney celebrated as ''the greatest tax reduction in a generation.''

Republicans like to suggest that Bush is following in the path of Reagan, who pushed through Congress the then-biggest tax cut in U.S. history in 1981.

What they usually neglect to mention is that the following year, Reagan reluctantly signed one of the biggest tax increases in history.

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

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