Politics Play Out as Tax Cut Debate Heats Up

Republican congressional leaders have asked a pro-tax cut advocacy group to stop running television ads against two moderate GOP senators, the head of the group said Tuesday.

Stephen Moore, president of the Club for Growth (search), said the ads will be stopped until Thursday, when the Senate Finance Committee (search) is supposed to be marking up the tax cut plan currently under negotiations. Moore said GOP lawmakers told him the negotiations are in a crucial stage and should not be upset.

The Club for Growth has been on the offensive against Republican Sens. Olympia Snowe (search) of Maine and George Voinovich (search) of Ohio, both of whom have said they can not support a tax cut above $350 billion over the next 10 years. President Bush had sought a $726 billion cut, but backed off that and agreed to settle for the $550 billion sum being negotiated in the House.

The organization released two polls Tuesday that show Maine and Ohio voters strongly backing the president's tax cuts, and concluded that both lawmakers have suffered in voters' opinions because of their opposition to a larger tax cut and could suffer at the polls.

But Snowe and Voinovich, who say they are concerned about a deficit expected to top $400 million this year, so far have remained steadfast to their plans to hold down spending.

They are also not alone in their opposition to the president's plan. Democrats said Tuesday that their alternative $152 billion program is a better solution.

Senate Minority Leader Tom Daschle, D-S.D., said the Democratic proposal increases the child tax credit to $800 and reduces the so-called marriage penalty — both elements of the Bush plan — in addition to giving each taxpayer a quick $300. It also would offer small businesses a 50 percent tax credit next year and give state and local governments $40 billion.

"It provides three times more economic boost this year — when we need it the most — than the Republican plan at a fraction of the cost. And it doesn't create huge, permanent new obligations that will worsen our long-term economic situation," Daschle said.

But while Daschle may have the backing of Democrats, the proposal is falling on deaf ears among Republicans, who say they think they know how to get a larger tax package through each chamber — at least something between the $350 billion floor being proposed in the Senate and the $550 billion ceiling under consideration in the House.

That would require the gutting or perhaps elimination of the centerpiece of the president's plan — the proposed dividend tax cut.

In the House, Ways and Means Committee Chairman Bill Thomas, R-Calif., opened up discussions on a package that would reduce the dividend tax cut to 15 percent and bring down the capital gains tax rate to 15 percent. The bill would come to $277 billion of the $550 billion proposed tax cuts, with the rest going to accelerated marginal tax cut rates, an increase of the child tax credit to $1,000 over three years and a reduction in the marriage penalty tax that forces couples to pay more in taxes after they marry. The House GOP bill also allows small businesses to write off $100,000 of investment from 2003 through 2007, $25,000 more than the president has sought.

A vote could reach the floor by the end of the week.

In the Senate, Finance Committee Chairman Chuck Grassley, R-Iowa, included a provision into the proposal that would stretch out the dividend tax reductions over three years, eliminating the tax by thirds over that time.

"[Dividend tax cuts] would very much improve the capital-to-labor ratio, and when capital is in strong supply, that is a real opportunity for labor to make big gains in their income as well as in their productivity," Grassley told Fox News.

Snowe, a member of the committee, said she favors allowing taxpayers to exclude $1,500 of dividend income from taxation and called Grassley's approach a gimmick that hides the cost of the break. Snowe also wants to increase spending, giving states $20 billion, half of which can be used for Medicaid.

The committee has until Thursday to hash out the details of the chairman's proposal, which is already $65 billion above what he promised Voinovich and Snowe in order to get the budget resolution passed at the beginning of last month. Aides say they have found $40 billion in revenue-generating plans, including a crackdown on corporate tax shelters and extended customs fees, to offset the extra cash.

Grassley said that he is not going to get exactly what he proposed, but he is confident of giving Bush more than what is currently on the Senate table.

"In the final analysis, the president is going to get most of what he wants," Grassley said. "When we get this tax bill passed, whether it is everything the president wants or not, it's going to create 1 4/10 million new jobs, the economy is going to grow at 3 to 3 1/2 percent instead of the 2 percent now and we're going to create jobs."

In any case, the White House is already signaling it will claim victory if the rest of the president's plan is approved.

"The debate is not if there is going to be tax relief, the debate now is how much tax relief," Bush told the Tax Relief Coalition at the U.S. Chamber of Commerce in what has become a near daily speech pushing his economic package. Bush did not make any specific reference to a bottom line.

"There's a lot of progress being made. Obviously, it's not everything that the president sought, but it's an awful lot of what the president sought," said his spokesman Ari Fleischer.

At the same time the White House pushes the tax cut victory, the president knows the loss of jobs is likely to be blamed on him so he emphasized during an afternoon meeting in the Oval Office that Congress' failure to provide the tax cuts that he says will create jobs is like flirting with disaster.

"We're going to get a tax package through because it's the right thing to do. And I hope Congress acts decisively and boldly. I put up a package that will increase the number of new jobs by a million folks at the end of 2004. And I expect them to understand, there's a lot of people looking for work and the burden is on them right now," he said.

Fox News' Brian Wilson, Jim Angle and James Rosen contributed to this report.