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Crossing The Tax-Cut Aisle
Key Senate Dems could support the Bush tax break.


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Larry Kudlow

President George W. Bush is doing a great job in the early days, including his splendid inaugural speech. But it’s the rest of the Republican party that I worry about.

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On Saturday, Bush pledged that “we will reduce taxes, to recover the momentum of our economy and reward the effort and enterprise of working Americans.” Did you note the key verb, reward? With that verb, in one simple, straight-forward sentence, Bush captured the supply-side, incentive-effect model of economic growth. So, at least we have one pro-growth, tax-rate-cutting mole in the Bush Administration.

By Monday, however, the old GOP was at it again. In a lengthy interview in Barron’s, Senate Finance Chairman Charles Grassley comes out against the Bush tax-cut plan to lower personal rates across-the-board. Instead, Grassley argues for last-year’s small package that would limit tax relief to easing the marriage penalty and the estate tax. He doesn’t even mention expanding super-saver IRAs, and he tells interviewer Jim McTague that business tax breaks are out of the question. Great.

Grassley goes on to argue, “I would not have a percentage cut across-the-board, but percentage-point reductions. For example, we would reduce the 15% bracket to 10%.” This, according to Grassley, would be a tax-break for the wealthiest as well as the low-end income earners. Huh?

Here’s a calculation based on Grassley’s tax logic. Somebody earning $300,000 a year would receive a $2,145 tax break, as would $100k or $200k earners. That comes to two-thirds-of-one-percent rate relief. And, mind you, there would be no incentive-reward effect, merely a rebate-type tax cut. It’s chump change. Cab fare. People who provide the seed corn for the nation’s new and small businesses, which create 85% of the new jobs, would get bubkus. Thanks, Chuck.

Grassley still obsesses over federal debt reduction, and what he calls “tax equality” (read: class warfare). Fortunately, the Democrats are moving ahead, beyond Grassley. Georgia Sen. Zell Miller has become the first Senate Democrat to sign on to the Bush tax-cut plan, agreeing to co-sponsor with Texas Sen. Phil Gramm. Gramm, by the way, is not really a Republican, but a great free-market economist.

Miller says that he has been shocked since becoming a senator last year — upon the death of Republican Paul Coverdell — at how Congress was “slurping up the surplus” with new spending. And he and Gramm argued the weakening economy adds urgency to the need for tax relief.

The movement of a Southern Democrat like Miller into the Bush tax-cut camp also raises an important legislative strategy point for team Bush. George Bush carried three-fifths, or 30 states, in the last election. Many of those states are represented by Democrats in the Senate, but Bush piled up huge victory margins in those states. By my count, there are five Democratic senators in states that Bush carried by 60% or more. These include Tom Daschle and Tim Johnson in South Dakota (60% Bush majority), Byron Dorgan and Kent Conrad in North Dakota (61% Bush majority), and Ben Nelson in Nebraska (63% Bush majority). Then there are another six Senate Democrats in states that Bush carried by 55% or more, including Ernest Hollings of South Carolina (57% for Bush), Max Baucus of Montana (58% for Bush), John Edwards in North Carolina (56% for Bush), Evan Bayh of Indiana (57% for Bush), and Zell Miller and Max Cleland of Georgia, which Bush won with 55% of the vote.

Also, Bush carried Louisiana, represented by Democrats John Breaux and Mary Landrieu, with a 53% majority. And finally, Arkansas Democrat Blanch Lincoln has to contend with a 51% Bush victory (in Bill Clinton’s former home state).

So, there are 14 possible Democratic votes in the Senate from Bush states. That’s a good-enough potential number to offset a couple of Northeastern Republican defections, and puts Bush in pretty good shape in the upper chamber. Meanwhile, in the lower house, a group of blue-dog conservative Democrats are pulling together their own tax-cut plan, which, in terms of static revenue accounting, is approximately the size of Bush’s plan. “If you look at a $6-trillion surplus and you take 25%, that’s a $1.5-trillion tax cut,” according to Rep. Ronnie Shows (D, MS), as reported in the Washington Post. Shows says this still leaves 50% of the budget surplus to debt reduction and 25% to new spending.

In electoral terms, it’s worth noting that Bush carried 78% of the counties across America, and, of course, congressional districts are largely determined on a county-by-county basis. So, just as in the Senate, Bush has a lot more potential political support in the House than most media observers credit him with.

That is, if the Republican party, including finance chairman Grassley, can get with the program.



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