House Ways and Means Committee Chairman Bill Thomas (R-Calif.) raised serious questions yesterday about President Bush's plan to slash taxes on investment dividends, cautioning that the proposal could have dramatic, unforeseen consequences on the economy, corporate management and financial markets.
The first public comments by Thomas on the president's 10-year, $674 billion economic growth plan came the day before the administration begins its formal effort to sell the proposal to Capitol Hill. Treasury Secretary-nominee John W. Snow will promote the plan before the Senate Finance Committee today at his confirmation hearing, and Bush will likely devote much of tonight's State of the Union address to a plan that he says will jolt the economy out of the doldrums.
But it may be the plan itself -- especially the centerpiece $364 billion proposal to end the "double taxation" of dividends -- that is in the doldrums. Senate Minority Leader Thomas A. Daschle (D-S.D.) declared it "dead on arrival" over the weekend, drawing a sharp response yesterday from White House spokesman Ari Fleischer.
But even Fleischer neglected to mention the dividend proposal in his defense of the larger tax cut package, an oversight that White House aides said was inadvertent.
"I think it's a shame if anybody would say that a plan to double the child credit from $500 to $1,000 is dead on arrival [and] if anybody is indicating a plan to accelerate the reduction in the marriage penalty is dead on arrival," Fleischer said.
Democrats on the Finance Committee say they plan to bore into Snow on the tax plan, its effect on the economy and its impact on the growing budget deficit. On Wednesday, the Congressional Budget Office will release deficit forecasts for the current fiscal year that are expected to put the red ink at about $165 billion to $175 billion -- not counting a new round of tax cuts or a war with Iraq, Senate GOP aides said.
Democrats will use those worsening budget projections, plus Snow's statements in the 1990s supporting a balanced budget, to try to splash more cold water on the president's proposal. The opposition of a half-dozen Democratic and Republican Senate centrists also appears to be hardening, following a private meeting with Federal Reserve Board Chairman Alan Greenspan last week.
According to participants, Greenspan signaled that Congress should avoid any large package of tax cuts designed to stimulate the economy, which he said would emerge from its "soft spot" on its own. He said the dividend proposal would have very little short-term impact on the economy.
But for the White House, Thomas's critique may carry more sting than do the Democrats' attacks or Greenspan's private comments. At the very least, the Ways and Means chairman indicated that even the Republican-dominated House would be moving ahead slowly with the president's plan. Three weeks after the proposal's unveiling, Thomas said he still lacks enough details to fully evaluate it.
"I'm trying to figure out what it means," said Thomas, explaining why he has yet to endorse the Bush plan. "My job is not to say, 'Attaboy. Good deal.' "
Thomas said the dividend plan does not actually end the double taxation of dividends, echoing criticism in the business community that it would leave some dividends taxed while favoring others. He said he also worries about the plan's impact on investor behavior and corporate management, resurrecting traditional Republican fears of Washington meddling in the economy.
"There are significant consequences of which stock you buy, which stock is offered, corporate management decisions," Thomas said. "It's pretty self-evident that there are a number of ripple effects" that have to be considered.