Democrats bend to Bush's tax cut

by Martin Kettle
Special report: the US elections 
guardian unlimited

George Bush launched the flagship of his domestic agenda for the first year of his presidency yesterday when he sent his plan for billions of dollars of tax cuts to the US Congress.

Mr Bush's $1.6 trillion, (£1,100bn) 10-year tax-cut programme was the centrepiece of his election campaign last year and it is now seen by most Republicans as the key to the party's congressional hopes in midterm elections in November 2002.

Opposition Democrats responded by announcing plans to fight the package, but in terms markedly less confrontational than those they put forward during the election campaign

. Both parties recognise that the tax cuts could go a long way to deciding whether the Bush administration secures re-election in 2004, so the political manoeuvring is more than usually charged with significance.

Mr Bush is determined to deliver on a key election pledge, but he also revealed yesterday how much the context of his proposals has changed in just a few months. When he was campaigning for the White House, he advocated the tax cut on the grounds that a booming economy and a soaring federal budget surplus permitted a windfall for all Americans. But with the recent slowdown in the US economy, the president now says that the tax cuts are needed to reinvigorate demand.

"A warning light is flashing on the dashboard of our economy and we just can't drive on and hope for the best," Mr Bush said at the White House yesterday, while promoting his tax plans. "We need tax relief now. In fact, we need tax relief yesterday."

The Bush plan focuses on reducing the current five federal income tax rate bands to four lower bands; at present, individual US taxpayers face five bands ranging from 15% to 39.6%. Mr Bush's proposal would replace them with bands of 10%, 15%, 25%, and 33%. The plan also calls for the expansion of child credits for parents, a change in the tax position of married couples and the phased repeal of estate taxes or death duties, which are only paid by the rich. Tax breaks on charitable contributions will also be eased further.

Mr Bush plans to backdate the changes to January 1. "I urge the Congress to pass my tax-relief plan with the swiftness these uncertain times demand," Mr Bush said.

Republicans are hoping that they can get the tax cuts signed into law by the Independence Day holiday on July 4, but the eventual shape of the package is likely to be very different from the plan outlined by Mr Bush this week.

While Democrats are likely to press for reductions in the handouts, the most likely changes in the package could be those which are backed by Mr Bush's Republicans, many of whom believe that the time is ripe for even more extensive cuts than those proposed by the White House. In particular, the bill is certain to be a prime target for corporate lobbying interests which are planning to attach a range of business tax breaks to the legislation before it emerges from Congress.

The White House press secretary Ari Fleischer reiterated yesterday that Mr Bush remains "firmly committed'" to the $1.6 trillion plan and that he thinks it is important to stick to the figure he promoted. "The president believes that whether you're a Republican or whether you're a Democrat, the bill shouldn't be loaded up," Mr Fleischer said.

Democrats criticised the package for a lack of specifics and claimed that the total package could add up to $1 trillion more than the White House acknowledges. If true, party leaders said, the tax cuts could eat up 96% of the federal surplus at a time when revenues were likely to be reduced because of the slowdown.

There was a notable change of tone in the Democratic attacks, however. During the election, Mr Gore repeatedly charged that the Bush plan favoured the rich at the expense of middle-and working-class Americans. But Mr Bush stressed the plan's alleged attractions for "ordinary folks" this week and Democrats are now more cautious about labelling the package as merely a rich persons' ramp.