Knight Ridder/Tribune News Service

The Kansas City Star

August 22, 2001, Wednesday

SECTION: DOMESTIC NEWS

Bush, critics grapple over effects of tax cut

By Rick Montgomery

KANSAS CITY, Mo. _ President Bush's summer vacation began just when he and American taxpayers were supposed to be feeling cheerier.

The first round of federal tax rebates were popping up in mailboxes: honest-to-goodness checks of up to $600 per household, compliments of the compassionate conservative and a Congress swimming in huge surpluses.

Now, suddenly, dark warnings about the federal budget are rolling out of Washington, casting shadows over everyone's fun in the sun. Bush's tax cuts, which many pundits hailed as a political triumph a few weeks ago, now are being used as talking points for Democrats. They cite reports of budget projections _ including one to be released Wednesday _ that federal surpluses outside Social Security have all but vanished.

On Tuesday, Democratic television commercials warning that the Medicare and Social Security trust funds are in danger began airing in a half dozen cities.

Don't worry, the president told a trusting audience at Truman High School in Independence. Not only will tax cuts totaling $1.35 trillion over 11 years pump up the economy, Bush stressed, but "we've got enough money" to pay down some in public debt, boost spending on education and defense, and still protect Social Security reserves. He dared Congress to hold down irresponsible spending.

The political stakes are huge for Bush and his detractors, experts agree. If the tax cut fails to stimulate the economy, the specter of deficits could jeopardize Bush's most ambitious projects, such as a missile defense system, not to mention his chances for re-election.

Democrats, on the other hand, risk suggesting to Americans now cashing those rebate checks that the government can't stand to hear all that loose change jingling in taxpayers' pockets. They seem more worried about tax revenue slipping away than the economy recovering.

"The Democrats are practicing some campaign themes for next year," said Charles O. Jones, University of Wisconsin professor emeritus of political science. "It's a hard sell when Americans are getting their tax rebates and there isn't a big, general hurt out there."

An assertive Bush plucked those sentiments Tuesday: "I believe there are some who resent tax relief, because they want more of your money in Washington."

Administration and congressional officials say this year's tax cuts, combined with the economic downturn, have whacked about $120 billion from the expected surplus for the current fiscal year, which ends Sept. 30. That would leave the federal budget still $160 billion in the black _ a figure nearly equal to the surplus in Social Security receipts.

"I think the president is caught by surprise" by how quickly the surplus has been shrinking, said Teresa Ghilarducci, associate professor of economics at the University of Notre Dame.

"Most economists are accused of being too gloomy about the future," she said. "But if I was in Congress, I'd be bracing for a recession and rolling back those tax cuts."

The Bush administration's Office of Management and Budget will issue its updated budget projections today. The president on Tuesday said the report "will show in plain terms" that the nation's bills are more than covered. However, the report also will show the Social Security lockbox barely escaped being tapped. Politicians in both parties had promised not to do that to pay for federal programs.

The Congressional Budget Office will release its own projections, expected to be less rosy, within a week.

The Democratic assault was signaled last weekend by House Minority Leader Richard Gephardt of Missouri. Nobody's fiscal tightwad, Gephardt went so far as to hint on television that across-the-board spending cuts might be needed to ensure a balanced budget and to prevent the Social Security trust fund from being raided.

Few in Washington think Gephardt is serious about across-the-board spending cuts. Democrats want to force Bush to make hard choices on the budget, or break his promises on education and defense.

For now, a confused public might gird for a debate over whose crystal ball is better, said Dan Mitchell, a senior official at the Heritage Foundation.

Civil servants who produce budget projections "tend to shoot straight. It's the politicians interpreting the projections who tend to be slippery," said Mitchell. "People don't know what to believe. It would be nice if we had a very honest, open debate about these issues."

Rep. Dennis Moore, a Kansas Democrat who voted in favor of the Bush tax cuts, said Tuesday he was concerned that the the president was dismissing the more pessimistic views of the Congressional Budget Office in favor of "bookkeeping techniques to hide the fact that Social Security funds may be spent."

Moore, a member of the House Budget Committee, said Bush was correct in telling the audience at Truman High that this year's federal surplus was the second highest in U.S. history.

"What he didn't say is that virtually all of that (surplus) is Social Security money we have promised not to spend," said Moore.

Like Moore in the House, a dozen Democrats in the Senate joined Republicans in supporting the tax cuts. Among them was Jean Carnahan of Missouri.

Moore said he was not yet ready to scale back those cuts. He did pledge to stick to congressional budget limits and vote against any appropriation that might require tapping into Social Security or Medicare surpluses _ namely, Bush's proposal to boost missile defense.

"I want the president to stick with his promise to be fiscally responsible," Moore said, "and I'll be backing him up if he does."

The Bush team welcomes Democratic expressions about keeping the lid on government spending.

"The tax cut, I make no apology for. Neither should anyone in the administration," Bush's chief economic adviser, Lawrence Lindsey, said Sunday on the TV show "Meet the Press." "The tax cut is the solution to this economic problem," which he said began several months before Bush took office.

"It's August. Maybe nobody's paying attention to the debate now, but they will be by the end of the year," said Robert McIntyre, director for Citizens for Tax Justice, which fought the Bush plan.

"It won't take too long for people to realize that, well, I got my $600 or $300 rebate, but I'm a little worried about my parents on Medicare," McIntyre said. "Come next year, corporate taxes will be going through the floor.

"I think this issue will hang around for the next election. Maybe for the rest of the decade."

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