Bush Is Now Sold on Pitch for Immediate Tax Relief

KALAMAZOO, Mich. —  President Bush on Tuesday joined a bipartisan rush in Congress to provide Americans with immediate tax cuts to stimulate the economy--signaling the likelihood that relief will be on the way to taxpayers as early as this summer.

“The need for action is urgent,” Bush said, echoing leaders of both parties in Congress who in recent days have pushed for an immediate $60-billion tax cut.

Bush also expressed concern that Democrats may push to pass immediate tax relief but then forego the income tax rate cuts and reforms that he also is advocating in his signature $1.6-trillion, 10-year tax cut plan.

“Some in Congress want America to choose between these goals, to think of the moment and not the future,” the president said. “But lasting prosperity requires long-term thinking.”

Most Republicans have been insisting that any immediate tax cut be linked to Bush’s rate reductions and other tax cuts. But the political pressure to act quickly is building, and even some GOP leaders said Tuesday that they may consider splitting off a 2001 tax cut to speed action on it.

Providing tax relief has been a major priority for Bush, but he was playing catch-up in his remarks Tuesday, endorsing the idea of quick tax cuts that congressional leaders from both parties have been promoting for some time.

The fast-growing clamor for an immediate tax cut in 2001 is a measure of how dramatically the political climate for the tax debate has changed as members of Congress and their constituents have been rocked by the sinking stock market and signs of an economic downturn.

“It really heightens the possibilities” for short-term tax relief, said John Feehery, spokesman for House Speaker J. Dennis Hastert (R-Ill.). “It’s real money in people’s pocket, and there’s a chance they will get it by July 4.”

Momentum began to build last week after the Federal Reserve cut interest rates by a half point--the third such cut this year--and yet stocks plunged anew. That unnerved many members of Congress, making it politically more difficult for them to brush off the need for legislative action by saying the economy is better managed by Fed action.

As economic worries mounted, Democrats have stepped up their attack on Bush’s original tax plan, which would not take effect until 2002, by saying it would have virtually no immediate effect on the economy.

Indeed, even some conservatives began criticizing Bush for moving too slowly to respond to worsening economic conditions--which are vastly different from the rosy economic environment in which he introduced his tax plan during the 2000 presidential campaign.

“Bush’s passivity is not going to work,” editorialized the Weekly Standard, a conservative magazine. “The collapse in the financial markets and the downturn in the broader economy have transformed the landscape. Members of Congress are getting way out front of the original Bush proposal.”

Bush moved to recapture the initiative on economic policy in his address to the Kalamazoo Chamber of Commerce.

Michigan is the 22nd state that Bush has visited since taking office. Many of his trips, especially of late, have been aimed at exerting pressure on Democratic senators in states that Bush carried in November, often by big margins.

And Michigan may be a tough sell for Bush, since Al Gore won the state and it is represented by two liberal Democrats--a fact that Bush tacitly confronted in his remarks.

“I’m here to ask for your help,” he told more than a thousand local businessmen and women. “If you like what you hear, you’re only an e-mail away from letting two senators know what you think.”

In what was billed as a major state-of-the-economy address, Bush declared the economy to be “somewhat winded but fundamentally strong.” Bush tried to rebut Democratic charges that his recent characterizations of a “sputtering” economy have actually played a role in the downturn.

The president cited an array of indices that he said show that “the American economy began slowing last summer”--that is, under President Clinton’s watch.

“As many Americans know firsthand, U.S. stock markets have been declining steadily for more than a year. The Nasdaq peaked a year ago. . . . The Standard & Poor’s 500 did the same. The Dow Jones industrial average peaked 15 months ago--in January of 2000,” Bush said.

“Since those peaks, the Dow has lost nearly 20% of its value; the S&P; more than a quarter of its value; and the Nasdaq more than half of its value.”

(Buoyed in part by a strong consumer confidence report, the Dow posted a 2.7% gain Tuesday, bringing its rebound since Thursday’s two-year low to nearly 6%.)

Bush delivered an ardent appeal for a permanent reduction in all tax rates, saying: “Our economy needs more than a pick-me-up, more than a onetime boost.”

Bush has said in the past that he would support congressional efforts to make a tiny part of his tax cut apply to 2001--about $5 billion in proposed rate cuts--but his speech Tuesday marked his first full-throated endorsement of more ambitious proposals being floated in the last week to provide an additional $60 billion in immediate tax relief.

“In the short term, the American consumer needs a hand,” the president said. “They need tax relief fast. In fact, they need it yesterday. So I strongly support the idea of backdating tax relief to get cash into the consumers’ hands as swiftly as possible.”

Bush is scheduled to meet with House and Senate Republican leaders to discuss budget and tax policy this morning, just as the House is preparing to vote on a budget blueprint that makes room for only a nominal tax cut in 2001.

In the Senate, however, Republican and Democratic leaders within the last week have quickly formed a consensus on how big the short-term tax cut should be: $60 billion, to be taken from a 2001 surplus that is expected to be more than $90 billion. But the parties remain divided over exactly what kind of tax cut to provide and how to move it through Congress.

Most Republican leaders have favored providing the relief by changing income tax withholding tables later this year. That would allow workers to take home more of their pay but would spread the tax cut over several months.

Senate Democrats have argued for an immediate lump sum rebate. At a news conference Tuesday, Senate Minority Leader Tom Daschle of South Dakota proposed a onetime tax rebate of $300 per taxpayer in 2001. Daschle estimated that if the bill were passed in April, people would begin to receive rebate checks from the Treasury in July.

In addition, Senate Democrats proposed reducing the lowest income tax rate from 15% to 10%, retroactive to Jan. 1--rather than phasing in the cut over five years as Bush has proposed. And they urged quick action on those two issues rather than linking them to the president’s broader tax plan.

“We can act now to take these two widely-agreed-upon proposals off of the table and get them onto the president’s desk,” Daschle said.

Most Republicans are wary of splitting off the economic stimulus tax cut, fearing--as Bush does--that Democrats would then abandon the broader tax cut. “It would be a ploy,” said Sen. Larry E. Craig (R-Idaho). “We would not fall into that trap.”

But in a glimmer of flexibility, Senate Finance Committee Chairman Charles E. Grassley (R-Iowa) said he would consider expedited treatment of the immediate tax cut in exchange for an agreement from Democrats to consider the president’s complete package on a specified time this spring. And House Majority Leader Dick Armey (R-Texas) said he would recommend separate action on any 2001 tax rebate--even though he does not believe it would do much to stimulate the economy.

“The rebate idea may have one very important virtue, however,” Armey said in a memo to Republicans. “It may turn out to be the only effective means of getting this year’s massive surplus back into the hands of the taxpayers who produced it.”