Bush Renews Push for Extending Tax Cuts

By Michael A. Fletcher and Jonathan Weisman
Washington Post Staff Writers
Tuesday, December 6, 2005

KERNERSVILLE, N.C., Dec. 5 -- Intensifying his efforts to focus more public attention on the economy, President Bush on Monday renewed his demand that Congress extend tax cuts on investment dividends and capital gains, saying they are vital to keeping the nation's economy growing.

Since 2001, Bush has been able to practically dictate tax policy to Congress. Tax cuts have passed each of the past five years, totaling $1.8 trillion over 10 years. But a tax-cutting call that was once readily heeded on Capitol Hill is now facing stiff resistance from lawmakers of both parties, who maintain that efforts to rein in the deficit cannot rely solely on cuts to programs for the poor.

Most of Bush's tax cuts will expire at the end of 2010, and Congress has so far not acted on his pleas that those sunset provisions be stricken -- a plea he made anew here at a John Deere-Hitachi plant.

"The United States Congress needs to make this tax relief permanent," the president said before a tableau of blue-collar employees in matching gray work shirts.

The centerpiece of the 2003 tax bill -- a deep cut to the tax rates on dividends and capital gains -- will expire in 2008. But even a more modest White House request to extend them until 2010 is in trouble. The Senate balked last month at extending the dividend and capital gains tax cuts even a single year. With Sen. Olympia J. Snowe (R-Maine) resolutely opposed, the Finance Committee stripped the measure out of a tax bill largely devoted to investment incentives for the hurricane-ravaged Gulf Coast, charitable giving revisions and a one-year fix to the alternative minimum tax.

The House Ways and Means Committee last month approved a five-year $56 billion tax cut that would extend the dividend and capital gains tax cuts through 2010, at a cost of $20.6 billion over five years and $50.8 billion over 10 years. But the bill did not reach the House floor, as planned, before the House adjourned for Thanksgiving break.

House leaders will try again for a vote Thursday, but moderate Republicans in the House have expressed deep misgivings about approving a measure so beneficial to affluent investors so soon after they approved a budget-cutting bill that would cut people off food stamps, squeeze student lenders, impose new fees on Medicaid recipients and slash federal aid for child-support enforcement.

"Obviously, the juxtaposition of cutting taxes and food stamps within a few days is not attractive," said Rep. James T. Walsh (R-N.Y.).

Another obstacle has arisen over the Bush administration's insistence that tax breaks to induce economic investment in the Gulf Coast region apply to all businesses, including casinos that vowed to rebuild even before the incentives were proposed. Administration officials say the market -- not the government -- should decide which types of businesses will flourish in the rebuilt Gulf region.

But 65 Republicans, led by Rep. Frank R. Wolf (Va.), have promised to oppose any tax cut until they receive assurances that business incentives will not be made available for casinos, massage parlors, liquor stores and other establishments that offend cultural conservatives and that have been left out of previous economic development programs.

"How do you go to the American people saying we're going to give out tax breaks to rebuild an industry which has already said, 'We're going in and we're going to be bigger and better than ever'?" Wolf asked. "If a tornado came in to Nevada, should we give out a tax break to help rebuild a brothel?"

Bush fell back on campaign-style rhetoric yesterday: "When you hear people say that we don't need to make the tax relief permanent, what they're really saying is, they're going to raise your taxes."

Bush's speech here before workers at a fast-growing John Deere-Hitachi construction machinery plant continued a White House effort to promote positive economic news, which stands in contrast to a generally gloomy public mood about the economy. Although corporate profits have increased dramatically in recent years and employment is growing, gasoline prices are now falling and key economic measures have shown impressive growth, much of the public is pessimistic about the economy's direction. A recent Gallup poll found that more than three in five Americans rate the economy as fair or poor, while 58 percent say it is getting worse.

The disconnect between gross economic measures and public sentiments, some analysts note, is occurring partly because many economic benefits are not making their way to ordinary workers. Poverty is up in the nation, inflation outstripped wage growth during a recent 12-month period and median household income has declined for five straight years.

Also, recent surveys have shown that small businesses are deeply concerned about the cost of energy and health care, dampening their enthusiasm for the current economic climate, said Rep. Nydia M. Velazquez (N.Y.), the top Democrat on the House Small Business Committee.

In his remarks here, Bush brushed aside bad news to focus on the nation's substantial economic growth, and he said that continuing the dividend and capital gains tax cuts is essential to continuing that progress. "The tax cuts are working," Bush said, adding that "we can't take this growth for granted."

As federal spending increases with the continued war in Iraq and the cost of rebuilding the Gulf Coast region, even some Republicans in Congress have been reluctant to heed the president's call to make the tax cuts permanent.

Bush, who has been criticized by fiscal hawks in Congress as a free spender, attempted to reassert his conservative credentials by promising to clamp down on government expenditures. "We are going to redouble our efforts to restrain the spending appetite of United States government," he said.


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