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2004 Race May Pivot on Details of Tax Bills

May 11, 2003|Ronald Brownstein and Janet Hook | Times Staff Writers

WASHINGTON — With little notice, the tax bills moving toward completion in Congress could significantly change the landscape of next year's presidential campaign.

By accelerating the reductions in income tax rates President Bush won in 2001, the measures would undermine a centerpiece of the political and economic strategy for several of the leading Democratic contenders.

Hoping to avoid Republican charges of raising taxes, Sens. John F. Kerry of Massachusetts, Joseph I. Lieberman of Connecticut, Bob Graham of Florida and John Edwards of North Carolina have all proposed to finance their agendas not by repealing the tax cuts already implemented in 2001, but by blocking income tax rate cuts now scheduled for 2004 and 2006.

All indications are that the final tax bill expected to emerge from Congress would render that strategy obsolete by advancing all of those tax cuts into 2003 -- locking them into law before any Democrat can claim the White House.

In that way, the legislation would force the four Democrats toward a stark choice they had hoped to avoid: either accepting the Bush cuts or explicitly proposing to increase taxes. The first option would leave them with little money to fund the initiatives they are proposing; the second would increase their vulnerability to GOP charges of reverting to tax-and-spend economics.

"It definitely complicates things," said a senior advisor to one of the four candidates. "It's a tougher position for all of these campaigns."

For that reason, the plan to accelerate Bush's income tax rate cuts could have much greater political implications for the presidential campaign than the fight over his proposal to eliminate taxes on income from dividends, which has drawn far more notice.

"All of the attention has been on the dividend components, but if you are [White House political advisor] Karl Rove, the rate reductions may be a more important thing for you to lock in," said Peter R. Orszag, a tax specialist at the Brookings Institution think tank in Washington.


Political Aims

Republican strategists believe Democrats will pay a heavy price in next year's campaign if they propose to raise taxes by repealing the rate cuts.

"It would do two things," said one GOP strategist familiar with party plans for 2004. "It would provide a lens with which swing voters would view them as offering the same old Democratic stuff. And secondly, it would be a motivational factor for the Republican base."

Recent political history, however, offers a mixed verdict on the political risk of proposing tax increases. Most analysts agree that Democratic presidential nominee Walter F. Mondale was hurt in the 1984 campaign when he proposed raising taxes to close the deficits that had swelled under Ronald Reagan. But Bill Clinton won in 1992 even though he openly promised to raise income taxes on the top earners to help reduce the deficits that had persisted under Bush's father, George H.W. Bush.

"It won't be hard to win the argument that in a time of national sacrifice the very wealthiest have to chip in a little more," predicted Bruce Reed, a former top policy aide to Clinton.

The prospect of a subtle but potentially significant shift in the tax debate for the 2004 campaign springs from a central feature of the $1.35-trillion tax cut Bush pushed through Congress in 2001.

To save money, the bill cut taxes only gradually through the next decade. The bill provided an immediate 1 percentage point reduction in the tax rate for each of the top four tax brackets in 2001. But it also scheduled further reductions in those brackets for 2004 and 2006.

So, for instance, the top rate paid by the highest earners was reduced from 39.6% (the higher level that Clinton had established) to 38.6% in 2001; it is scheduled to fall to 37.6% in 2004 and 35% in 2006. The other brackets follow a similar pattern of graduated reductions.


2001 Cut Assailed

All of the Democratic presidential contenders criticize the 2001 tax cut as damaging to the economy and the federal budget. But they have divided over how fundamentally to challenge it -- with the phase-in feature creating the point of distinction.

Rep. Richard A. Gephardt (D-Mo.) has promised the most sweeping change: He says that as president he would repeal all of the 2001 tax cut, including the rate reductions already implemented that year. He would use the money to fund a sweeping new tax credit for employers designed to create nearly universal access to health care.

Former Vermont Gov. Howard Dean, while not detailing his plans so explicitly, also has said he intends to repeal much of the tax cut -- including the rate reductions already provided--largely to pay for his own plans to expand access to health care.

Although both men argue that working families would be better off under their plan than with the Bush tax cut, one point is indisputable: Both of their proposals constitute tax increases because they would raise income tax rates from the level they are at today.


Centrists' Aims

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