Politics & Policy

$1 Trillion Tax Cut?

House could turbo-charge president's tax-cut package.

The president’s tax cut could be much bigger than anticipated — at least in the House-modified version. Likely to be introduced before week’s end, many House insiders are floating $1 trillion as their cut. That’s roughly 50-percent larger that the White House version and is likely to trigger a feeding frenzy among members and lobbyists looking to get new provisions added to the House bill. The operative question may no longer be “Will a tax cut pass?” but “How big will the tax cut be?”

Almost immediately after the announcement of the tax cut, many in the media declared the proposal dead on arrival. House Ways and Means Chairman Bill Thomas, whose committee has jurisdiction over all tax cuts, didn’t help matters when he appeared underwhelmed by the president’s tax initiatives. But Thomas is gearing up for an effort to enact tax reform, even if it doesn’t end up exactly as the White House proposed. Starting next week, there will be a week’s worth of hearings, and “everything will be on the table,” notes a senior House GOP staffer.

While some or all of the president’s provisions may be altered, it is unlikely that any will be scrapped. In fact, House GOP staffers and outside groups familiar with the backroom discussions indicate that the final House bill could be much larger than what the president sent to the Hill.

Shortly after the president announced his final package, the White House let House Majority Leader Tom Delay know that he should feel free to ramp up the tax cutting — and it looks that process will start in Thomas’s committee. The biggest change could be the addition of full business expensing, which would allow companies to immediately write off equipment and factory expenses. Backers of expensing believe that this would have a potent economic impact immediately, as companies will likely take the tax bait to purchase more equipment, which leads to increased productivity for the company and higher economic growth for the country. If expensing doesn’t make the final cut, senior GOP House staffers suggest that accelerated depreciation or research-and-development tax credits could.

On the docket for next week’s hearings is the centerpiece of Bush’s plan: the elimination of the double taxation of dividends. But Thomas isn’t about to rubberstamp the president’s blueprint on this issue; Thomas wants to examine eliminating dividend taxes on the corporate side as opposed to the shareholder side, as the White House proposed. Although it might make for a stirring academic debate, the administration’s position on this is pretty much a lock. Explains Americans for Tax Reform president Grover Norquist, “Economically, it’s better to do it from the corporate side, but then it becomes a less populist issue. Today, 70% of voters get dividends, which means liberals can’t get away with saying it’s a ‘tax cut for the rich.’”

Regardless of the details of the House’s final bill, the real challenge will be in the Senate. Media reports of disarray there are somewhat more accurate. Quips one senior GOP Senate staffer, “I’d rather herd cats than try to get 51 senators behind one tax plan.” But having a $1 trillion gun to their head could make senators think twice before dropping sizeable tax cuts entirely.

The tax cut will head to the Senate after it clears the House, most likely at the end of March. Though it’s too early to make predictions, there is little chance the Senate would embrace anything close to a $1 trillion tax cut. Even though a cut that size would never make it to the president’s desk, the House passing a package of that size would serve as a reverse triangulation — a GOP House leadership staffer said Delay calls it “willful triangulation” — for the White House, making Bush’s original proposal look modest by comparison.

When asked for the official line about how it feels about efforts in the House to expand the tax cut, the White House press office said, “Our plan is our plan.” Maybe not for long.

— Joel Mowbray is an NRO contributor and a Townhall.com columnist.


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