GOP Divided on Tax Cuts

WASHINGTON – Absent clear direction from President Bush, Republicans in Congress are divided about whether to push for another round of tax relief as an election-year response to continued economic weakness and investor losses.

In the crush of last-minute business facing Congress before adjournment, it seems most likely that no bill will become law.

Bush's enthusiasm in August for more tax relief appears to have waned amid White House disagreement about its political and economic wisdom. One senior administration official, speaking on condition of anonymity, said the plan was "on life support,'' although a White House spokeswoman insisted the president was still examining options.

"The president has not made any decisions,'' said spokeswoman Claire Buchan. "He continues to review ideas.''

Some key lawmakers, notably House Majority Leader Dick Armey, are arguing to press ahead with a measure that would center on two key items.

One would increase the amount of capital losses that can be deducted on tax returns, now limited to $3,000. The other would allow people to save more in 401(k) accounts and other retirement plans — many depleted by the stock market swoon — and raise the age threshold, currently 70 1/2 , at which people must begin withdrawals from these accounts.

"I am just talking about what helps real people in their real lives,'' said Armey, R-Texas.

Others, including House Ways and Means Committee Chairman Bill Thomas, have reservations about whether such a proposal would be large enough to do much good in a $10 trillion economy and whether increasing savings would provide meaningful help immediately.

"If you're going to do something, try to affect spending now, not savings — that would be counter what you want to do,'' Thomas, R-Calif., said Wednesday.

Thomas also said he was "anxious'' for guidance from the White House, adding that individual lawmakers should not "go off volunteering whatever it is they think'' should be in the package.

"I think there needs to be some consideration of people who are knowledgeable in this area,'' said Thomas, whose committee writes tax legislation.

GOP leadership aides, however, said House Speaker Dennis Hastert, R-Ill., favors taking some action, particularly with economic worries foremost in the minds of many voters heading into the November elections. Control of both the House and Senate is at stake.

Rep. Charles Rangel, senior Democrat on the Ways and Means Committee, said, "Hastert and Thomas, they always seem to fight each other when it comes to policy.'' But Rangel said he expected the House GOP to eventually unite around a plan before adjourning later this fall.

"That's just what they do,'' said Rangel, D-N.Y. "I really think they don't care what the deficits are or what the policy is. They just want to say they decreased every tax they could.''

Democrats argue that tax relief beyond the 10-year, $1.35 trillion cut passed last year will exacerbate the federal budget deficit, drain away money that could be used for other priorities and go primarily to wealthier taxpayers. These arguments have political resonance that could have an impact in tight re-election campaigns.

"It's going to be a much tougher row to hoe this time around,'' said Martin Regalia, chief economist at the U.S. Chamber of Commerce. "This is not the type of atmosphere where you would try to push a tax package through.''

Even if the House settles on a plan and Republicans win its passage, there is little chance the Senate would have the time or inclination to follow suit. Even Minority Leader Trent Lott, a reliable tax cutter, said more tax relief could be blocked by the press of other business in a Senate where Democrats have a slender majority.

"I have my doubts,'' said Lott, R-Miss. "Primarily, it's just concern about how we put it together and get it done in the time we have left.''

The Senate may get a chance to vote on a much different package being developed by Finance Committee Chairman Max Baucus, D-Mont. That plan would be aimed at small businesses and rural needs and could be linked to an unspecified increase in the minimum wage.

Items under consideration for a plan expected to cost about $15 billion over 10 years include a tax credit for companies that extend broadband Internet service to underserved areas; an increase in the investments small businesses can immediately deduct from taxes; and a series of tax breaks for farmers and ranchers.