Suddenly, tax cuts are probable
Voters were lukewarm about Bush's plan before the election, but the tax- cut context has changed since then.
It's a surprising shift in emphasis: Washington's 2001 tax debate no longer centers on whether reductions will occur, but on how broad and deep they are likely to be.Skip to next paragraph
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Not long ago the conventional wisdom held that President Bush's $1.6 trillion tax-cut proposal was a political anachronism. Voters were lukewarm about the plan, the thinking went. The barely elected Mr. Bush would be forced to ditch it in the name of bipartisanship.
Then surplus projections boomed upward. Federal Reserve Board Chairman Alan Greenspan gave tax cuts an implicit OK.
Just like that, revenue reduction became hot, hot, hot. Now it's the Democrats who have a political problem - namely, how to counter Bush's package, expected to be officially unveiled this week, without appearing to have become the party of the Grinch.
"Democrats hope to be in the majority in the next Congress, and they do not want to offend any interest group that wants a tax cut," says Robert Reischauer, a budget expert who is president of the Urban Institute, a Washington think tank.
Lessons of 1981
But Democratic congressional leaders also do not want to relive Washington's last experience with major across-the-board tax cuts: 1981.
Back then, newly elected President Ronald Reagan pushed hard for major income-tax and business-depreciation reductions. Democrats fought back with their own, more targeted, reductions.
The result was the tax-cut perfect storm. The proposals whirled together, combining, as lawmakers of all political persuasions rushed to add pet provisions. When it finally passed, the tax bill had nearly doubled in size.
In 1981, "Democrats were as guilty in participating in the bidding-up as [Republicans] were," said Senate minority leader Tom Daschle of North Dakota last week.
As recently as Inauguration Day, many Democrats believed that big tax cuts were unlikely to materialize in 2001. This belief was at least partly based on the assumption that Bush was not deeply attached to his tax-cut proposal. Indeed, during the presidential campaign, some analysts contended that Bush's tax stance was merely a means of defending himself against a rightward challenge from Steve Forbes.
Furthermore, tax cuts have often been a politically polarizing issue. Bush, who squeaked into office on the strength of a few hundred votes, might have judged that scaling back his tax proposals was a way to reach across a yawning partisan divide.
But that's not how things have turned out. Bush officials have pressed forward with their agenda as written - and as they have done so, the context for tax reduction has changed radically in their favor.
First, in congressional testimony on Jan. 25, Mr. Greenspan said he now believes the coming surplus will be so large that the US will have enough money both to pay off the national debt and to engage in "surplus-lowering activities" (read "tax cuts"). The shift marked a subtle but unmistakable change in the respected Fed chairman's tone.
"This man is as close to walking on water as you can get in Washington," says Eric Schlecht, director of congressional relations at the National Taxpayers Union. "And frankly, he's been kind of a bane to tax-cutters over the past few years."