August 29, 2002
Bush to Economists: Don't Worry, We'll Make Sure Our Proposals Don't Pass

Economists have been worried that the Bush Administration will monkey with the tax code in destructive ways in an attempt to provide "investor protection" to show that it is "doing something" for the victims of the NASDAQ crash.

Now the Bush Administration is telling critical economists not to worry. Whether their proposals are good tax policy or not doesn't matter, for the administration has no intention of actually passing any laws to change the tax code. They just want the investor class to think that something will be done if the Republicans acquire substantial electoral majorities in November.


washingtonpost.com: Investor Tax Cut Push Becomes Campaign Tactic: In an Aug. 21 White House meeting with more than a half-dozen economists, Lawrence B. Lindsey, Bush's chief economic adviser, said the administration is committed to moving forward with tax cuts to boost the stock market and soothe investors' pain, several participants said. The package almost certainly will include a provision to increase the amount of stock market losses that can be deducted from income taxes each year, said congressional aides familiar with the negotiations.

Also under consideration are reducing the tax rates on capital gains and stock dividends; raising the limit for contributions to retirement accounts; and boosting the age at which retirees must begin withdrawing funds from individual retirement accounts from 70 1/2 to 75.

Both liberal and conservative economists have raised concerns about the proposals' short-term economic impact and the precedent they might set for government intervention in the stock market. But according to participants, Lindsey indicated he had no illusions that the tax cuts would pass...

washingtonpost.com

Investor Tax Cut Push Becomes Campaign Tactic
Bush Aides Not Betting on Hill Approval

By Jonathan Weisman
Washington Post Staff Writer
Thursday, August 29, 2002; Page A04

The White House plans to push forward with a package of tax cuts for investors, but administration officials have made it clear to concerned conservative economists that the measures are designed more to help Republicans in the fall elections than to pass Congress this year.

Worsening federal deficit forecasts released Tuesday by the Congressional Budget Office have made lawmakers in both parties skeptical about more tax cuts. Treasury and White House tax experts met yesterday to hash out the package, but progress stalled over the cost.

In an Aug. 21 White House meeting with more than a half-dozen economists, Lawrence B. Lindsey, Bush's chief economic adviser, said the administration is committed to moving forward with tax cuts to boost the stock market and soothe investors' pain, several participants said. The package almost certainly will include a provision to increase the amount of stock market losses that can be deducted from income taxes each year, said congressional aides familiar with the negotiations.

Also under consideration are reducing the tax rates on capital gains and stock dividends; raising the limit for contributions to retirement accounts; and boosting the age at which retirees must begin withdrawing funds from individual retirement accounts from 70 1/2 to 75.

Both liberal and conservative economists have raised concerns about the proposals' short-term economic impact and the precedent they might set for government intervention in the stock market. But according to participants, Lindsey indicated he had no illusions that the tax cuts would pass in the limited time Congress has left before the midterm elections.

Instead, participants said, the White House would be giving GOP candidates an answer to Democrats who blame the president's party for this summer's dramatic stock slide.

"This will be an investor-class-oriented tax cut designed to boost the value of stocks, but it is also being crafted as a political document," said Stephen Moore, who was at the meeting and is president of the Club for Growth, a conservative political action committee. "Republicans need something to run on, and they need the president's leadership. This will be precisely for that purpose."

Said another participant: "They know this thing can't be enacted into law; that's a given. But they do think they can ram it through the House, and leave it to [Senate Majority Leader Thomas A.] Daschle [D-S.D.] to kill it."

Republicans, who narrowly control the House, could say their party is looking for solutions to the nation's economic problems, while Democrats are fixated on arcane budget issues and last year's 10-year, $1.35 trillion tax cut, meeting participants said.

White House spokesman Scott McClellan said yesterday that no decisions have been made about the package. "There are a lot of interesting ideas discussed in addition to the proposals . . . the president has outlined to strengthen our economy," he said from President Bush's ranch in Crawford, Tex. "I think it's premature to get into ruling things in or out."

A major investor tax cut package would probably die in the Democratic-controlled Senate, according to key aides. Senate Budget Committee Chairman Kent Conrad (D-N.D.) said Tuesday that the cost of any tax cuts would have to be offset by spending cuts or tax increases. One Senate leadership aide expressed little fear about the political repercussions of killing a tax package that Democrats could portray as a gift to the wealthy paid for by Social Security taxes.

Meanwhile, it's not clear how many Republicans want the package. A senior House leadership aide, speaking on the condition of anonymity, said the CBO's budget forecast -- which indicated that the 10-year, $5.6 trillion surplus projected last year has largely vanished -- has made GOP candidates wary.

Goldman Sachs & Co. released federal budget projections yesterday that were even more pessimistic than the CBO numbers. The investment bank foresees triple-digit deficits through the end of the decade.

House Speaker J. Dennis Hastert (R-Ill.) has spoken to White House officials and others about the package. But now, any proposal will have to be modest, such as raising the loss-deductibility limit and raising the mandatory IRA-withdrawal age, the House leadership aide said.

© 2002 The Washington Post Company

Posted by DeLong at August 29, 2002 01:51 PM | Trackback

Email this entry
Email a link to this entry to:


Your email address:


Message (optional):


Comments

Oh my God, political posturing still goes on in Washington? In an election year??

This disingenuousness ranks with FDR's famous 1940 campaign pledge:
"While I am talking to you mothers and fathers, I give you one more assurance. I have said this before, but I shall say it again and again and again: Your boys are not going to be sent into any foreign wars."
... voiced while he and Marshall & Co. were drawing up war plans and trying to figure the best way to get into the fighting.

Well, maybe not quite. But I am always surprised by how many people profess to be shocked, shocked, to find that there is politics going on in politics -- at least over there on the other side of the aisle. ;-)

BTW, did Lindsey say that the Bushies were actually going to sabotage their own proposal? Or when he "indicated he had no illusions that the tax cuts would pass" was he maybe referring to the chances of it getting through the Democratic Senate? That's not entirely clear.

Posted by: Jim Glass on August 29, 2002 03:33 PM

True, but they normally don't admit it at the same time they're proposing!

Posted by: Jason McCullough on August 30, 2002 12:46 AM

The administration has already done all it could to play to the richest of Americans and to create problems for future social security and medicare applicants. The point was not merely to aid the rich, but to belittle the legacy of FDR. There are deficits as far as can be seen with an aging long living populace to protect.

Save for John McCain and a very few others, the need is to elect Democrats to Congress.

Posted by: on August 30, 2002 09:25 AM

FDR was simply a wonderful wondeful president. We are forever blessed to have had such a president in such critical years. FDR helped preserve capitalism and democracy.

Posted by: on August 30, 2002 09:51 AM

Just Trust Us
By Paul Krugman

Summer 2000: Candidate George W. Bush assures voters that his tax cut is affordable. He illustrates his point with four $1 bills. One bill, he says, represents the tax cut; one represents new programs, such as prescription drug coverage; the other two are funds set aside to pay down debt, strengthening Social Security. He pledges, without qualification, not to dip into the Social Security surplus.

August 2002: The nonpartisan Congressional Budget Office issues a much grimmer projection, with a 2003 deficit twice that predicted by the administration, and deficits persisting until 2006. Moreover, the C.B.O. is required by law to make unrealistic assumptions that cause it to understate future deficits. A new analysis by Goldman Sachs, which is not under these constraints, predicts deficits well over $100 billion each year for the rest of the decade.

This $7 trillion reversal of fiscal fortune has received remarkably little public attention; it has been crowded off the front page by talk of war. But its consequences will be immense.

Posted by: on August 30, 2002 11:49 AM

Brad

If Goldman Sachs is correct and we are speeding towards "well over" 100 billion dollar a year deficits for the rest of the decade, what will be the effect on relative interest rates?

What sort of fiscal constraints are we to expect?

What of drug benefits for medicare applicants?

Posted by: on August 30, 2002 12:14 PM

Again the effect of the "suggested" tax cuts would be to further cater to the wealthiest of Americans. Nice to have a capital gains tax cut if you have hundreds of thousands or millions of dollars in stock holdings beyond a retirement plan. As for the deficit, perhaps social security benefits can be limited. Phooey.

Posted by: on August 31, 2002 02:26 PM
Post a comment
Name:


Email Address:


URL:


Comments:


Remember info?