White House May Lose Tax Cut Battle

As President Bush met with Wall Street economists to discuss boosting the economy, White House officials on Wednesday acknowledged President Bush is unlikely to get the entire $726 billion tax cut package he has been pushing.

But as they put on a brave face, officials said they don't agree with a decision on Capitol Hill to add $3 billion to the president's wartime supplemental budget to pay for a second airline industry bailout. The first -- for $15 billion -- came shortly after Sept. 11, 2001.

Last week, the House and Senate disagreed on how much of the president's package, which includes stock dividend tax cuts, accelerated child tax credits and marginal cuts, should be kept in the budget blueprints for the 2004 fiscal year. In the House, the GOP barely passed the president's entire package. The Senate, however, voted by an even narrower margin to slash the tax cut package by more than half to $350 billion.

House and Senate lawmakers met Wednesday to reconcile the discrepancies between the two bills. Leading Republicans, including House Majority Leader Tom DeLay of Texas and Senate Budget Committee Chairman Don Nickles of Oklahoma, have said the final figure will likely be somewhere between the two numbers.

But the Senate's Democratic leader disagreed, saying the Senate won't sign on to anything larger than what it originally passed.

"I think that there is a real possibility that they would have a great deal of difficulty passing something with a tax cut of a size larger than the $350 billion," Senate Minority Leader Tom Daschle, D-S.D., said Wednesday.

After Wednesday's meeting with the president, one economic analyst also hedged on the ability to get the entire package even as he said the president was overwhelmingly committed to seeing it passed in full.

"I think that the White House is expecting that if all goes well with the war, the president will have a tremendous amount of political capital and he 's going to use a lot of that capital, I believe, to get his plan through," Ed Yardeni, chief investment strategist at Prudential Securities, told Fox News.

"And even if he only gets half, let's say worst case scenario is half, that still means that the marginal tax cut rates that he wanted last year that were pushed out into '04 and '06 and made temporary, he'll get those as permanent, retroactive to January. He's going to give us lots and lots of stimulus, once the plan is implemented, with or without the dividend plan," he added.

White House Press Secretary Ari Fleischer said Wednesday the president still believes his tax cut proposal is best for economic growth, and indicated no flexibility on the matter. But Fleischer took a somewhat softer approach than previous statements.

"The president believes very strongly that the higher the number, the more jobs will be created for the American people," Fleischer said, adding, "We understand that there will be a give-and-take process in the Congress between the House and the Senate. We understand that the president proposes, Congress disposes."

On Tuesday, lawmakers on the House panel approved an additional $3.2 billion in economic aid to the airlines to be added to the president's $74.7 billion supplemental budget, which is being tacked on to fiscal year 2003. Senate Majority Leader Bill Frist, R-Tenn., said he and the rest of the Senate leadership had agreed on a $2.7 billion increase for the airlines.

Airline analysts say the industry is in its worst downturn ever because of terrorism fears, the war in Iraq, overcapacity, mismanagement and high labor costs. Since the war began two weeks ago, the airlines have announced 10,000 job cuts, according to industry estimates.

The White House said the $3 billion request is excessive. But sources on Capitol Hill privately say the White House has acknowledged the airlines need help paying for security improvements like reinforcing cockpit doors and placing air marshals on many more flights than before the Sept. 11 attacks.

Without indicating a number that would be acceptable, Fleischer said that a lot of concerns held by the airlines about the war in Iraq have not materialized.

"Jet fuel costs have actually fallen not risen. Fuel costs have fallen from $1.20 a gallon in February to just 80 cents this past week. Also in terms of passenger ridership, the airlines anticipated a 15 percent decline in ridership. There's indeed been a decline of 10 percent."

And even though the White House seems determined to separate the industry's problems into those caused by Sept. 11 and those caused by war in Iraq, lawmakers say the costs of Sept. 11 continue to rise.

That being the case, the House has proposed returning to the airlines $2.50 of the $5 ticket price hike imposed after the war for security improvements. That money is now going to pay for federal screeners with the Transportation Security Administration.

The Senate proposal gives the airlines a tax holiday for the security fee from April 1 through Sept. 30, reimburses them for specific security measures, extends unemployment insurance for aviation workers and gives airports $375 million.

Fox News' Wendell Goler contributed to this report.