War Casualty -- Tax Cuts Jude Wanniski March 25, 2003

Just as I feared. By deferring the Budget Resolution to this week instead of nailing it down on Friday, the Republican Senate leaders put at risk the $600 set-aside for tax cuts. On the Senate floor this afternoon an amendment chopped the number back to $350 billion. The amendment by Sen. Kent Conrad [D-ND] passed 51-48. What does this mean?  A number of moderates stated that they thought getting a budget was important regardless of the tax number, so presumably they won`t kill a budget that splits the difference ($538 billion). But that`s the most optimistic view. Prior to this recent skirmishing, administration thinking was that the Democrats and liberal Republicans would hold the conference hostage to the $350 billion number, which would leave no room for cuts in capital taxation.  

A lot will continue to depend on how the war goes in the period ahead. The longer it lasts and the more costlier it becomes, the less certain it becomes that the double-tax on dividends will be addressed at all. Nobody quite knows when Chairman Bill Thomas of House Ways & Means stands on all this, as it had been known he was never excited about the President`s program to begin with. A week ago, it was assumed that if the Senate came in with a low number, he would argue against nibbling away at the dividend tax. At $538 billion there could still be a 50% exclusion on dividends when it gets to the taxwriters at Ways & Means and Senate Finance. If there was real enthusiasm for a full exclusion -- again given how the war goes -- the provisions on scoring could be juggled the way they were for the 2001 tax cut (when they moved the end date to nine years from ten in order to squeeze it into the conference). But in any case, given this latest development, it will be a long and bumpy road before we know the outcome. It does seem pretty clear to me that a good piece of the sell-off Monday was the result of market anticipation there would be a successful effort to slash back the Budget Resolution provision for tax cuts.