As large as it is, President Bush's tax cut
package could easily swell from $1.6 trillion to well over $2
trillion once members of Congress begin adding tax breaks for
individuals, businesses and interest groups waiting in the wings.
"I think it's a real concern," said Sen. Max Baucus of
Montana, the ranking Democrat on the Senate Finance Committee.
"Many of us were here in 1981, when President Reagan proposed his
tax cut, and that's what happens. There's a bidding war: Who can
come up with the biggest tax deduction?"
For individual taxpayers, many Republicans and Democrats want
expanded contribution limits for IRAs and 401(k)s, cuts in capital
gains taxes, adjustments to the alternative minimum tax and repeal
of the Spanish-American War-era telephone tax. Special interests
want such items as tax-deductible savings accounts for farmers and
tax credits for American Indian investment and employment.
"There will be a lot of candidates and a lot of fitting pieces
together," said House Majority Leader Dick Armey, R-Texas.
"Everything's on the table," added Sen. Charles Grassley,
R-Iowa, chairman of the Senate Finance Committee.
Given new projections for an even larger budget surplus, Armey
added, Congress "should provide tax relief beyond the level
currently being discussed."
Lobbyists for the National Federation of Independent Business,
U.S. Chamber of Commerce and other groups are drawing up lengthy
lists of tax breaks they want added to the Bush package, arguing
that without them it would do very little for corporate America.
The items include raising the tax deduction for business meals,
increasing equipment expense tax write-offs and extending a foreign
tax break for financial services companies.
"There are a lot of things in the tax code that need to be
fixed," said Ken Kies, lobbyist for the PricewaterhouseCoopers
accounting and consulting firm. "Also, if you are really worried
about the economy, and you want to create jobs, giving some
corporate tax cut is a pretty good idea for capital formation."
Bush plans to introduce essentially the same tax package he
proposed during the campaign, which totals $1.6 trillion over 10
years. It would reduce and simplify all individual income tax
rates, gradually repeal the estate tax, double the $500 child tax
credit, ease the tax marriage penalty paid by many two-income
couples and make the corporate research and development tax credit
permanent, among other things.
"The package the president sends to the Hill will be the one he
ran on," said Bush press secretary Ari Fleischer.
Key members of Congress, including Armey and Senate Majority
Leader Trent Lott, R-Miss., have advocated cutting capital gains
taxes on sales of assets as a further tonic to the stagnant
economy. Others are pushing to scrap the alternative minimum tax, a
complex parallel income tax system intended to prevent the wealthy
from escaping taxes but is increasingly ensnaring the middle class.
"This arcane tax system has dogged ordinary taxpayers for long
enough," Grassley said. "It's time to close the door."
Killing the minimum tax would cost an estimated $200 billion
over 10 years. Two items that passed either the House or Senate, or
both, last year repeal of the century-old 3 percent telephone
excise tax and pension reforms that include raising the IRA and
401(k) limits would cost a combined $107.3 billion, using last
Other breaks that gained wide support in Congress last year but
failed to win final passage or were vetoed by former President
Clinton include a deduction for health insurance expenses,
accelerating full health insurance deductibility for the
self-employed, raising the business meal deduction from 50 percent
to 80 percent, creating special tax-deductible savings accounts for
farmers and providing tax credits for bonds to finance Amtrak
high-speed rail projects.
The total price tag: about $90 billion over 10 years, again
using last year's projections.
Like most tax bills, some combination of the congressional
proposals is likely to wind up in the final product that Congress
sends to the White House or in a potential second tax relief bill
lawmakers are considering for later in the year. Adding tax breaks
sweetens the package to attract more votes and appeases lobbyists
who frequently lend financial and political muscle to the
"This is a bill that's going to get passed and going to get
signed into law," said Grover Norquist, president of Americans for
Tax Reform. "If I'm a Democrat or a Republican, I care deeply
because I could have something in that bill. You don't want to be a