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Bush Retreat Eased Bill's Advance (May 23)
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Bush and the Tax Cuts
With Dana Milbank
Washington Post Staff Writer

Friday, May 23, 2003; 2 p.m. ET

President Bush is poised to sign the $350 billion tax cut plan passed earlier today in the Senate. Though considerably smaller than the president's proposed $726 billion economic package, the White House is hailing the tax cut as a victory.

What changed from last month, when Bush called the $350 billion plan "a little bitty tax relief package?" Is this just White House spin? Will Democrats and Republicans use the cut as a major election year issue?

Washington Post staff writer Dana Milbank was online to discuss the $350 billion tax package and the shifting White House view.

The transcript follows.

Editor's Note: Washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.

Arlington, Va.: How is this plan different from the one Bush badmouthed a month ago?

Dana Milbank: When President Bush complained last month about the "little bitty" tax cut, his protest was about the size rather than the content. The size of the package, $350 billion over 10 years, is the same figure Bush had in mind when he spoke of little bitty.

What's interesting is his aides had been badmouthing the Bill Thomas proposal until earlier this week, saying it would not have the benefit it claimed. In negotiating this compromise this week, the White House endorsed the Thomas model of lower dividend and capital gains tax rates as the blueprint for the legislation.

Westminster, Md.: Critics of tax cuts love to talk about fairness. Well, if it's strictly about fairness -- meaning people are treated equally -- why isn't it fair that those who pay a much higher proportionate share of their income in taxes get a larger share of the relief in the tax bill? Even after the cuts go into effect, they still pay a higher percentage of their income in taxes than lower-income folks. Again, I'm not talking about economic incentives, class warfare, etc. I'm only talking about fairness here. Is it a fair system, even after the cuts?

Dana Milbank: This is an interesting question that comes up when virtually any tax cut is proposed, and it is easy to distort the figures to make a tax cut look either progressive or regressive. The federal income tax is progressive, a notion for which there has long been a broad consensus in American society. Those who earn more pay more, both proportionately and in absolute terms. On the other hand, if you talk about just sales taxes and payroll taxes, the system is regressive.

In the recent debate, the White House argued that its proposal is progressive because, overall, the wealthy would pay a greater share of taxes overall than they would under the previous rates. Liberals say this is nonsense, and that the wealthy are getting the overwhelming benefit of this tax cut in outright dollars. Both are correct, and the two are not mutually exclusive.

A more neutral way to measure the progressive/regressive nature is to see whether the wealthy would have a greater percentage reduction in their tax bills than the low-income earners. Under this definition, the plan Bush unveiled in January is regressive. I have not seen the numbers run for this compromise, but it probably would follow the same pattern because of the emphasis on capital gains and dividends.

Baltimore, Md.: Comment: It is completely disingenuous to call this a $350B tax cut, if in fact, the only way that is achieved is to have all the tax cuts repealed in the future. It's a double political whammy. Republicans get to say that Dems are trying to raise taxes, when the repeal date is raised, and caused deficits trying to fund needed programs.

Dana Milbank:
It depends on what's happening in five years. If Democrats are in power and the public is angry about a huge federal deficit pushing up interest rates, the tax cuts probably would not be extended. If the budget is returning to balance in a booming economy and Republicans are in power, the cuts almost certainly would be extended. The fact is even "permanent" tax cuts can be changed at any time by Congress and the president. A convincing argument can be made that all legislation, taxation and otherwise, should have "sunset" provisions that make them temporary. This would force the government to decide whether a policy is worthy of renewal, rather than let it continue because of inertia.

Somewhere, USA: How much of Bush's apparent changed reaction to the tax cut stems from the fact that this is the one Congress passed? Would he have vetoed a $100 billion cut? I doubt it.

Dana Milbank:
Bush made quite clear that he wanted a tax cut -- any tax cut -- to sign before Congress left for the Memorial Day recess. This suggests he would have taken $100 billion if that's what was negotiated. But $350 billion became the floor as soon as it was passed in the Senate the first time around. Ultimately, and after much campaigning, the White House concluded it could not get any more than that and still have 51 votes in the Senate.

Boston, Mass.: How impressed are you with the stock market's powerful reaction to the great news of this tax-cut package being rescued from near defeat by the bold leadership of the WH, Sen. Frist, and the House leadership? Last I checked, I think the "rally" was around 20 points on the Dow and 3 on the NASDAQ.

It strikes me that, despite Wall Street's overt boosterism for Bush's tax plans (I own some Fidelity funds and watch Jim Cramer), when it comes to voting with their portfolios, the money managers see this as at best no impact.

Dana Milbank:
It's not quite that meager. Today's 20 points in the Dow come after a 100 point gain in the previous two days. But the point is good: White House officials had been hopeful that their package would give a 10 percent boost to the stock market, and this clearly has not happened immediately. The legislation, while not eliminating the dividend tax, has a huge reduction in taxes paid by investors that should, in theory, cheer the markets. Let's give it another week or so.

Lyme, Ct.: I believe when the average voter, the kind that barely can name who holds the office of Vice President, hears the figures $350 billion versus $750 billion, that person will think: that's a lot of money, but will form no real strong opinion as to which figure is personally better or worse. What will make the difference is when they realize their program (you know, the one where everything else should be cut) has been saved. What projects and spending proposals are contained within the final figure that would have been cut had the Bush administration received what they wanted?

Dana Milbank:
The compromise dropped the "offsets" -- increases in other taxes or cuts in spending -- which is why the package did not grow from the $350 billion originally set by the Senate. Under this plan, the states will get $20 billion in assistance; under Bush's proposal, they did not get any funds. So the difference here is the states will cut fewer programs than they otherwise would have -- but its doubtful this cause-and-effect would be apparent to the average voter.

Baltimore, Md.: This is nonsense.
The lowest wage earners who pay income taxes are going to get a 100 percent tax cut. The top will get a 5-10 percent tax cut. How is this regressive?

Dana Milbank: OK, that's what the conservatives say.

The liberals say this: Under this plan, those who make more than $1 million a year will have an average tax cut of $93,500. For those in the middle of earners, it will be a cut of $217.

See, both can be true at the same time. That's why I suggested the more neutral method of comparing percentage reductions in tax burden across the spectrum.

Bethesda, Md.: What happened to convert George Voinovich? And, did Susan Collins become a tax-cut supporter before or AFTER she parked right at the president's side at Monday's state dinner?

Dana Milbank:

Voinovich kept his word, technically, because the package did not cross his $350 billion line. On the other hand, he had to swallow a lot of gimmickry to keep it at that level. The other $350 billion holdout, Olympia Snowe, opposed the plan along with John McCain and Lincoln Chafee.

Trenton, N.J.: Do you feel President Bush will pay a price among moderate Republicans (Snowe and Voinovich) for his "heavy-handed" attempts to influence their constituents to support his tax cut?

Dana Milbank:
There is little evidence of a Jeffords-like backlash. Republicans have a two-vote cushion now in the Senate, so the defection of one would not have the same impact, thus depriving would-be defectors of the clout Jeffords had. There's plenty of grumbling on Capitol Hill, but more than half way through his term, the president is still finding little downside in coercing congressional Republicans.


That wraps up today's show. Thanks to everyone who joined the discussion.

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