President Bush Calls for Permanent Tax Cuts

By Jim VandeHei
Washington Post Staff Writer
Tuesday, August 9, 2005; 7:42 PM

CRAWFORD, Texas -- President Bush on Tuesday called on Congress to make permanent tax cuts enacted over the past five years and restructure the U.S. tax code soon to keep the economy growing at healthy pace.

After meeting with economic advisers and members of his cabinet at his ranch here, Bush said the economy is humming in large part because Republicans cut taxes aggressively during his first term in office and are ahead of pace to cut the deficit in half by 2009. "The economy of the United States is strong and the foundation for sustained growth is in place," Bush told reporters.

But, he cautioned, "there are still some challenges to the economy." The president said his biggest concerns are gas prices nearing $2.40 per gallon on average and escalating health care costs for employers and individuals. "Rising health care costs are a potential burden on economic growth," Bush said. The president renewed his call for limits on medical liability lawsuits as one way to reduce health care costs, even though lawmakers, including some Republicans, have shown little interest in passing such legislation during this Congress.

Democrats say Bush has done little to solve what they see as a health care crisis, and reject Republican plans to expand medical savings accounts and allow small business to band together across state lines to purchase coverage for their employees as inadequate responses to a worsening problem.

The president said his economic policy is the reason 207,000 jobs were added in July, holding the unemployment rate steady at a relatively low 5 percent. By many other measures, the economy is, in fact, humming: it expanded at a robust 3.4 percent last quarter and analysts anticipate a speedier pace this summer. Business is picking up, too, as factory orders and investment in new equipment are on the upswing.

Yet the economic gains have not translated into political benefits for Bush, as recent polling shows a majority of Americans are not satisfied with the president's handling of economic issues. People are expressing concern to pollsters about several economic factors, including gas prices, health care costs and whether the housing bubble is about to burst.

Several analysts have warned that red-hot housing sales are starting to cool in many regions, as evidenced by the rising number of houses sitting on the market longer.

At the same time, interest rates for home mortgages are climbing steadily, though slowly. The Federal Reserve on Tuesday is expected to raise rates for the 10th consecutive time, pushing the benchmark to its highest since August of 2001 and exerting more upward pressure on mortgage rates.

Bush administration officials say gas prices are more to blame for the public's anxious mood about the economy. Gas prices hit a record high of $2.37 a gallon on Monday and oil prices topped $64 a gallon for the first time ever.

The news of skyrocketing oil and gas prices complicated Bush's efforts on Monday to claim victory and credit as he signed into law a new national energy policy. Instead, Bush was forced to concede the new law will do nothing to cut gasoline costs , which most affects those earning the least, anytime soon. The president today reiterated that the new law will not lower that cost of driving. The government's Energy Information Administration projects gas prices will shoot higher in the week's ahead.

"I think we are more concerned about energy prices and health care prices," Bush told reporters. "Those are the two areas we see as having the greatest affect . . . on the future of economic growth."

The president's health care solution is for Congress to enact limits on Medical liability lawsuits, permit small businesses to pool together to buy coverage, and allow Americans to put more money into tax-friendly savings accounts for health care. Even if all three ideas become law, it's unclear how much health care costs would be reduced.

There is a growing consensus in Congress that the cost to businesses of providing health coverage and to employees of purchasing coverage are too large to ignore. On top of this, Bush and Congress have made little progress in efforts to provide coverage to those who earn too little to buy it, one of the biggest drags on the U.S. economy. The annual cost for health care premiums slowed a bit last year, but continued to rise at a double-digit clip, which is much higher than the rate of inflation. Also, the number of insured hit 44.7 million in 2003, according to Kaiser Family Foundation, a nonprofit, nonpartisan group that tracks health care costs.

To keep the economy on track, Bush said Congress should make permanent all of the $1.85 trillion in tax cuts enacted during his first term, including tax breaks for parents, married couples, investors and many businesses. Bush and Republicans originally allowed for many of the tax breaks to expire in 2010 as a way to hold down budgetary costs.

Democrats and many Republicans oppose making all of the tax cuts permanent because it could drive up deficits at a time when rising Medicare costs resulting from Bush's plan to provide prescription drug coverage to older Americans is expected to drive up government expenditures dramatically.

Bush did not provide any new details for a broader restructuring of the tax code. A bipartisan commission appointed by Bush is expected to recommend a plan later this year. "I look forward to working with the tax reform commission to develop a simpler code that is a fairer code and one that encourages economic growth," he said.

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