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Tax Cut Is a Victory and a Risk for Bush

May 24, 2003|Ronald Brownstein | Times Staff Writer

WASHINGTON — With congressional approval of his third tax cut in three years, President Bush has deepened his imprint on the economy and accelerated his redirection of the federal government -- achievements that may present as many risks as opportunities for him.

Although reduced from his original proposal, the $350-billion package passed by the House early Friday and the Senate several hours later still represents a remarkable legislative accomplishment for him.

Never before has Washington approved a major tax cut in the shadow of war. Nor has it agreed to cut taxes while the federal government faced such deep budget deficits. And the bill's ultimate size may come closer to -- or exceed -- what Bush wanted because many of its most popular elements may be extended beyond their expiration dates.

The bill's passage underscores the willingness of Bush and congressional Republicans to leverage big changes in policy on a narrow legislative majority, and is likely to reinforce one of the president's most valuable political assets: the view of him as strong and decisive.

"It gives Bush the image of a leader, an impression as someone who cares and someone who is effective -- all of which are good arguments for people to hire you for four more years," said Allen Lichtman, an American University historian who studies presidential elections.

Yet in the near-term, the tax cut will swell a federal deficit already expected to be the largest ever this year -- an abrupt reversal from the surpluses Bush inherited. And by reinforcing the sharp change in economic policy Bush engineered in 2001 -- from President Clinton's focus on public investment and deficit reduction to an emphasis on repeated tax cuts -- the legislation could leave the administration more open to blame if the economy doesn't revive before next year's election.

"He completely owns the economy now," said Steve Elmendorf, chief of staff for the presidential campaign of Rep. Richard A. Gephardt (D-Mo.). "There's nothing he's tried to do in a significant way economically that Congress hasn't approved. To the extent people now focus on the economy, it's his economy."

With polls indicating that few Americans expect to personally benefit from the new tax cuts, many believe the bill is likely to help Bush in 2004 only to the extent it succeeds in jump-starting the economy. If growth picks up, Bush can claim credit, experts in both parties agree.

But if the economy doesn't improve, many analysts say Bush's success at passing his new plan could make it more difficult for him to place the blame on Clinton, Congress or the 2001 terrorist attacks, as the administration did during last year's midterm election.

With the latest bill, Bush has left little doubt that tax cuts constitute the unchallenged core of his domestic priorities. Arguably no president in modern times has invested more of his popularity on the economic value and political appeal of cutting taxes.

Measured as a share of the economy, the $1.35-trillion tax cut Bush pushed through Congress in 2001 was smaller than the reductions that President Reagan won in 1981, according to calculations by Peter Orszag, a tax expert at the Brookings Institution think tank. But when deficits surged, Reagan reversed course in 1982 and accepted a significant tax increase.

Bush, in the face of deficits, has pressed further down the tax cut path. He won small additional reductions for investment last year. And now he has squeezed through Congress these latest tax cuts officially valued at about $320 billion over 11 years, with the remaining $30 billion composed of aid to states and tax refunds for low-income families with children.

In fact, the 2003 tax cut is likely to cost far more than that. Congress held down the package's cost only by"sunsetting" many of its provisions so they expire in the next few years. The strong likelihood is that Bush and congressional Republicans will seek to extend all of those provisions -- from increased tax credits for children to the reduction in taxes on capital gains and dividends -- before they expire.

If all those provisions are extended, the full cost of the plan will range from $800 billion to $1 trillion, even more than the $725 billion Bush initially requested, according to a study by the Center on Budget and Policy Priorities, a liberal think tank.

If those full costs are added to the 2001 and 2002 packages, Bush's tax cuts would be about as large as the reductions Reagan won -- an amount equal to roughly 2% of the gross national product, according to Orszag. By 2013, assuming all provisions are extended, the three Bush tax cuts would reduce federal revenues by about $400 billion annually, Orszag calculates.

And Bush may not be done trying to cut taxes. "The president will propose a major tax cut next year," flatly predicted Grover Norquist, president of Americans for Tax Reform, a conservative group close to the White House.

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