The Bush II agenda takes shape

Since then, business has won so many tax breaks in Congress that the tax code has become enormously more complicated, and the overall corporate tax burden dramatically reduced.

The complication for Bush is that his tax cuts of 2001 and 2003 already were slanted in their benefits toward the rich.

One goal of tax cuts in the past four years, and expected to be reflected in tax proposals in the four years ahead, is to gradually shrink taxes on earnings from capital and investment. Supply side enthusiasts in the administration and in Congress see such a change as a stimulus to economic growth.

The problem is that such measures also can accentuate an increasing divide between the rich and poor, since the bulk of capital (stocks, bonds, businesses, etc.) is still owned by the well-to-do. The distribution of income in the US has become more unequal for some 30 years, through both Democratic and Republican regimes.

There is speculation that Bush will seek a flat income tax, with all brackets paying the same rate, or a national sales tax. Both could worsen income inequality.

During his campaign, President Bush often touched what is commonly termed the "third rail" of politics - changing the Social Security system. And he survived any political shock.

Bush avoids using the term favored by many economists - "privatization." But the president did speak of instituting private accounts for younger participants in the pension and disability system, leaving older workers and retirees untouched. So far, Bush has outlined no details.

"We have only rhetoric from the president," notes Peter Orszag, a Brookings Institution expert.

Any transition would be expensive. Depending on details, it could cost $1 trillion to $2 trillion over 10 years to make up lost revenues if only 2 percent of payroll taxes are switched into private accounts.

Daniel Mitchell, a Heritage Foundation economist, admits Social Security change has costs up front, but says long-term savings would more than offset these. He advocates Uncle Sam borrow the transition costs to move to full privatization. "It's less than the cost of doing nothing," he says.

But chances of getting such an ambitious program through Congress are considered slim. Any change would add to an already large budget deficit and could endanger reelection prospects of Republican members of the House in two years.

The main challenge in a second term will be correcting perceived problems with the No Child Left Behind law, Bush's signature education achievement in his first term. The law uses federal education dollars to leverage changes in local schools, including annual testing in early grades. But its complex formulas have led to unintended results. Look for new proposals to promote annual testing and proof of "adequate yearly progress" for subgroups of students in the nation's high schools.

A leading question is whether the president will claim a mandate to get back to the derailed idea of school vouchers. This is a long shot, but would be a return to Bush's desire to shift from maintaining schools to promoting choice.

Look for a return to the "compassionate conservativism," including more efforts to expand federal funding for faith-based social initiatives, especially in prison reform and drug treatment. Congressional leaders expect a new drive to pass a constitutional amendment defining marriage as between a man and a woman, and a push for a comprehensive ban on human cloning. "Human life is a creation of God, not a commodity to be exploited by man," says Bush.

Coming off an election in which many voters cited "morals" as a top concern, Bush may use that mandate to promote responsible fatherhood, abstinence-only sex education, and "healthy marriages" in the reauthorization of welfare reform.

Bush made campaign pledges to triple federal funds for abstinence programs in schools and community-based programs. The president can expect support from Senate moderates like Sens. Joseph Lieberman (D) of Connecticut and Evan Bayh (D) of Indiana on some of his agenda. In the 108th Congress, faith-based initiatives derailed in the Senate over whether faith groups seeking funding should be required to end discrimination in hiring.

• David R. Francis, Warren Richey, and Gail Russell Chaddock contributed.

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