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As Rate Cuts Fail, All Eye Fiscal Fix
By Paul Tharp   N.Y. Post
Now that Alan Greenspan has fumbled, President Bush has picked up the ball and is trying to score by saving the economy with some tax relief.

With the economy, and stock markets continuing their decline after Tuesday's half-point rate cut, the White House is furiously working to revise its playbook and get hard cash into the hands of Americas as early as July, say political insiders.

Instead of stretching planned personal income tax cuts over several years, Bush is publicly calling for immediate cuts that will be retroactive to January 2001, in hopes of signing them into law by July.

The bottom line is that Uncle Sam could be sending out lump-sum checks of typically $300 and up - which could spur consumers to spend more and pull the economy from the brink of all-out recession.

There is also a greater expection of a capital gains tax reduction.

Bush's tax cut package was originally designed as a long-term political play - to kick in just before his re-election campaign three years away, economists say.

But what the economy needs now is a quick fix.

"It's always been the issue that the Bush tax cut plan has very little in the beginning years, that it has no short-term impact, and obviously isn't helpful to solve our immediate problems," said Brian Nottage, senior economist at Economy.com.

But now the White House is hoping faster action might help.

"Let's say you'd save $600 in taxes for the whole year," said Nottage. "The government would lower tax tables for the second-half of the year so you'd pay $300 less in taxes, and let you have a few extra bucks in your paycheck.

"Then to cover the other $300 going back to January, the government would send out a lump-sum check covering what you would have saved," he said.

"At least parties in Washington are seriously talking about it, and I think there's a good chance that something like this will come out of it."

Wall Street says priming the economy with hard cash builds consumer confidence again in ways that the interest rate cuts don't.

"There's nothing better than putting cash into people's pockets to help the buying power in our economy," said Trude Latimer, chief market strategist at Berry Shino Securities.

"Rate cuts are good, too, but the only immediate impact investors get from a rate cut is that your funds available in a margin account will have a reduction in interest and you would get some more buying power," Latimer said. "We've been getting quite a lot of margin calls lately," she added.

Whether Bush becomes an economic hero with his tax cuts depends on whether he gets his revised package through Congress in the next few months.

"The question is whether George Bush can mobilize a different bill in the Senate which could have some rate reductions for everybody this year," said Larry Kudlow, senior economist at ING Barings.

"That would have a positive impact on investor spirits and consumer confidence."

Since Bush's original tax package cleared by the House doesn't give any meaningful tax cuts until the year 2005, many say it won't get any further through Congress.

Kudlow believes Democrats and some Republicans will likely tag on a capital-gains tax reduction to the revised package in the Senate, giving it clear sailing for most Senators.

"I think a capital-gains tax cut will become part of the new package, and that will be a home-run for the stock market," Kudlow said. "That's the most important tax for Wall Street."

"If the stock market saw that happen, you'd see a tremendous lift in investor spirits. Wall Street's psychology has gotten so sick.

"The market is going down because everyone thinks it is going down. Clever chaps on the trading floor call it 'momentum.'"

"But now you need something to jar investors into a more positive outlook. "

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