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The Race to the White House

Bush Yet to Flesh Out Domestic Agenda

Many likely small steps in taxes and savings would add up to 'radical change,' analysts say.

August 23, 2004|Warren Vieth | Times Staff Writer

WASHINGTON — With only a week to go before the Republican National Convention, the lack of details in President Bush's second-term domestic policy agenda has left some conservative activists worrying aloud about the Vision Thing.

But analysts from both parties make the case that although the individual pieces of Bush's emerging agenda may not appear that weighty or new, they still add up to something big.

Bundled within overlapping themes of tax reform and economic "ownership," they say, are initiatives that would, if enacted, move the country toward fundamentally different systems of taxation and social insurance.

Wage income would be taxed at something close to a flat rate instead of today's graduated rates. Investment income would be largely tax-free. And individuals would shoulder more of the risk for their retirement, in return for potentially greater rewards.

"If you tell liberals that we're going to have a flat tax, that's like putting a cross in front of a vampire: They start cringing," said Stephen Moore, president of the Club for Growth, a conservative fundraising organization. "By doing these things in little bitty steps at a time, it's sort of like a slippery slope, but in the right direction."

"What they're trying to do is a radical transformation of the tax code," said Peter Orszag, a former economic advisor to President Clinton and now a senior fellow at the centrist Brookings Institution. "They're trying to do it in little pieces rather than all at once. The sum of all those pieces would be a radical change."

Analysts and advisors, including some who have been conferring with the administration, said the president's short list of second-term priorities would probably consist of:

* Making first-term tax cuts permanent instead of letting them expire at various points over the next seven years. The cuts include lower income-tax rates, expanded breaks for married couples and families, reduced taxes on dividends and capital gains, bigger corporate tax deductions and a phased-out inheritance tax. Cost: about $1 trillion over 10 years.

* Allowing workers to divert a portion of their Social Security payroll taxes to new individual retirement accounts over which they control the choice of investments. Like 401(k) plans, their future value would depend on market performance, not government guarantees. Cost: $1 trillion over 10 years to maintain promised benefits.

* Scaling back the alternative minimum tax, which was instituted to ensure that wealthy filers wouldn't be able to shelter all of their income from taxes, but has begun to bite at the middle class because of income inflation. Cost: perhaps $500 billion over 10 years.

* Creating new vehicles -- including lifetime savings accounts and retirement savings accounts -- for reducing future taxes on savings and investment. Cost: minimal over the first 10 years, but increasingly large as future earnings are withdrawn.

* Expanding health-savings accounts, which allow Americans to accumulate money tax-free for future medical expenses, and creating similar homeownership tax breaks, such as credits for first-time buyers. Cost: uncertain.

On the campaign trail, Bush for the most part has stuck to perennials from his six-point plan for economic growth, such as tort reform, energy legislation and more tax cuts. But he has been throwing in a few hints about his "ownership society" agenda.

"During the next four years, we'll help more citizens to own their health plan, to own a piece of their retirement, to own their own home or their own small businesses," Bush told supporters at a Washington fundraiser last month. "We'll usher in a new era of ownership in America, with an agenda to help all our citizens save and build and invest, so every person owns a part of the American dream."

"We'll be working to build a culture of ownership in America," he told participants in a voter round-table in Annandale, Va., this month. "We want more people owning things in this country."

The lack of specifics has rattled some conservatives. Like his father 12 years ago, they say, Bush needs to articulate a bold domestic agenda, or risk losing the election by seeming out of touch with voters' pocketbook concerns.

"He needs to do something to assure core supporters that things aren't out of control ... and that the administration stands for something," said John Samples, director of the Center for Representative Government at the libertarian Cato Institute.

Former Republican congressman and Secretary of Housing and Urban Development Jack Kemp, a tax reform advocate, said he was optimistic about what he was hearing from Bush.

"On the stump, he's talking about this ownership society, about stakeholder democracy and the democratization of capitalism," Kemp said. "I've been working with the platform drafters, and I have a good feeling they're going to be articulating these ideas."

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