Taxes and Tactics
[Sorry, the video for this story has expired, but you can still read the transcript below. ]
KWAME HOLMAN: Two years after pushing through the largest package of tax cuts in decades, the president is trying again.
PRESIDENT GEORGE W. BUSH: The debate over whether we ought to have tax relief is over. That’s positive. Now we’re talking about how big the package ought to be and what it ought to look like.
KWAME HOLMAN: But the president today is pushing for tax cuts in an environment far different from two years ago. His political position has improved. The president’s job approval rating is much higher than it was then, and republicans now control both Houses of Congress.
But those forecasts two years ago of budget surpluses as far as the eye could see have been revised dramatically, and economists now see only deficits.
SEN. CHUCK GRASSLEY: I think it’s important to look at why we have a deficit. 83 percent of it is related to war, homeland security, and the downturn in the economy.
KWAME HOLMAN: Iowa republican chuck Grassley, like the president, believes a big tax cut can jump-start the economy. But as chairman of the Senate finance committee, Grassley has to write a tax bill that does more than simply reflect the president’s political momentum coming out of the war. He also has to satisfy the concerns of the Senate’s deficit hawks who insist tax cuts are the wrong way to go.
SEN. CHUCK GRASSLEY: I agree that the president is right on what he would like to do, that it’s good tax policy, that it will do a great deal of good for the economy, it’d do a great deal of good to enhance values of 401(k) retirement plans and IRA’s. I agree with all of that. But you get down to the final analysis: What can you get votes for?
KWAME HOLMAN: Last month however, in his attempt to walk the fine line between the president and the Senate, Grassley infuriated fellow Republicans in the House, Majority Leader Tom Delay included.
REP. TOM DeLAY: I’ve got blood coming from my tongue, having bitten it several times over the last couple of hours.
KWAME HOLMAN: On April 11, as both the House and Senate were in a rush to pass the budget resolution before members left town for spring recess, Chuck Grassley secured the votes of two key Republican senators, George Voinovich of Ohio and Olympia Snowe of Maine. Grassley did so by promising that any new tax cut package would total no more than $350 billion over ten years. Majority Leader Bill Frist okayed the deal.
SEN. CHUCK GRASSLEY: Let me be clear. Without this agreement, the budget resolution conference report would not pass the Senate today.
KWAME HOLMAN: Grassley was right. With Senate Democrats overwhelmingly opposed to the Republicans’ budget and tax cuts, the votes of Snowe and Voinovich were critical. The budget resolution passed only after Vice President Cheney cast the tiebreaker.
VICE PRESIDENT CHENEY: The vice president votes in the affirmative, and the conference report is agreed to.
SEN. CHUCK GRASSLEY: I was only operating within what we could do in the Senate, and I could deliver two votes and deliver on a promise of our providing a budget and the gateway towards the tax cut.
KWAME HOLMAN: The Senate’s $350 billion tax cut figure was less than half the cut President Bush originally had hoped for. But it also was less than the $550 billion tax cut Republicans leaders in the House had negotiated with the Senate just the night before. House Republicans felt blindsided by Grassley.
REP. TOM DELAY: His position was not expressed by him or any member of the Senate leadership during negotiations with the House. It was a secret. I didn’t know. The speaker didn’t know. The whip didn’t know. The committee chairman didn’t know. And the President of the United States didn’t know.
SEN. CHUCK GRASSLEY: They were of the view that in the United States Senate, if you’re two votes short, all you have to do is beat a couple of senators over the head and they’re going to vote with you. They forget that they’re people of strong conviction and that the Senate is a place to accommodate and compromise.
And quite frankly I thought that a $350 billion tax cut with all of the stimulus in it and the job creation that’s in it and relieving the anxiety of the American worker that quite frankly I was doing the House a favor. Obviously they didn’t see it that way, but they had promised a budget, and without two more votes in the Senate, they wouldn’t have gotten a budget. And I would have expected expressions of appreciation rather than as you’ve described it.
KWAME HOLMAN: Or as House Budget Chairman Jim Nussle described it.
REP. JIM NUSSLE: Even the French had the courtesy to inform the United States that they were not going to vote with us at the United Nations.
KWAME HOLMAN: And that became the theme of home state television attacks targeting Senators Voinovich and Snowe.
ANNOUNCER: President Bush courageously led the forces of freedom. But some so-called “allies” like France stood in the way. At home, President Bush has proposed bold job-creating tax cuts to boost our economy. But some so-called Republicans like Olympia Snowe stand in the way.
KWAME HOLMAN: The president applied some pressure of his own. He traveled to Ohio to rally support for larger tax cuts in Voinovich’s home state. The senator greeted the president at the airport, but skipped the rally, and missed the president’s reference to his tax cut position.
PRESIDENT GEORGE W. BUSH: Some in Congress say the plan is too big. Well, it seems like to me they might have some explaining to do. If they agree that tax relief creates jobs, then why are they for a little-bitty tax relief package?
KWAME HOLMAN: When members of Congress returned to work this week, it was Senate Republican Leader Frist who took the heat for the dust-up with the House.
SEN. BILL FRIST: I have apologized. I have said I’ve made mistakes. The big mistake, lesson learned, is no surprises. And at this point I’m ready to move on.
KWAME HOLMAN: And by Wednesday, Senator Frist again was aiming at $550 billion in tax cuts, the figure he originally agreed to with the House.
SEN. BILL FRIST: Our commitment is to grow this package as large as we possibly can, given the realities of individual members, Democrat or Republican.
KWAME HOLMAN: But Republicans Snowe and Voinovich remain opposed to tax cuts above $350 billion, while Republicans John McCain and Lincoln Chafee oppose any tax cuts at all. As for Republican Susan Collins, she says she won’t make her decision on tax cuts until the April unemployment figures are released tomorrow.
SEN. SUSAN COLLINS: My concern about the $350 billion number is that it would add to the deficit without having much impact on economy. We passed a recovery package a year ago that had no impact, despite best intention in boosting economic growth.
KWAME HOLMAN: And Grassley says Voinovich and Snowe would agree to tax cuts larger than $350 billion only if offset by other revenue or spending cuts.
SEN. CHUCK GRASSLEY: Some of those are going to have to come from other programs that aren’t under the jurisdiction of my committee. And I don’t have any control over those programs, and I would expect the leadership of the Senate to find that money. But if they found it, I could obviously do more tax policy.
KWAME HOLMAN: And then will come the details of the package. Right at the top of the president’s list is elimination of the tax on stock dividends.
KWAME HOLMAN: If there’s a cap on the amount of the tax cut, where does the president’s dividend tax cut rank with you versus marriage penalty, versus cutting Social Security taxes?
SEN. CHUCK GRASSLEY: The most important thing is to cut tax rates, then the marriage penalty, then the child credit, and then the 10 percent bracket for low-income people, and then accelerated depreciation for business, more expensing of depreciable property for small business, and then the dividend. But the dividend is a very important policy, and not less important only in the extent to when it kicks in to benefit the economy. And its benefit is spread out over more years.
KWAME HOLMAN: Whatever Grassley and the Senate do eventually will have to be worked out, once again, with their colleagues in the House.