Two weeks ago, President Bush derided the Senate's "little bitty" tax-cut bill. Now "little bitty" is on track for a grand White House signing ceremony, and the president will end up with less than half the tax cut he originally proposed.
Will the $350 billion tax cut agreed upon by the House and Senate-and blessed by Mr. Bush-serve to spur the economy out of its doldrums? Or will it amount to a half-measure too weak to have a real effect?
House and Senate leaders, along with Vice President Cheney, spent a day last week hammering out an "understanding" that stripped away enough of the tax cut to win over wavering Republicans in the Senate. A Wall Street Journal editorial expressed disappointment that the plan was the best a Republican White House and Congress could produce, and doubt that it was enough to bring on an economic recovery. Still, the Journal said, whatever the shape of the new law: "Republicans in the White House and Congress will have accepted responsibility for the condition of the economy from now through 2004."
Here are the two major provisions in the package: It would speed up scheduled cuts to income-tax rates and increase the child tax credit from $600 to $1,000. And it would cut taxation on dividends and capital gains to 15 percent. All the tax changes have expiration dates, and the old higher rates would kick in unless Congress acts to keep the rates low.
A centerpiece of the Bush plan was elimination of the dividend and capital-gains tax, which amounts to a double tax-because they're also taxed as income. Free-market tax experts believe that eliminating the double taxation on dividends and a big decrease in the government's take of capital gains would have stimulated real economic growth. Even more importantly some figured a complete elimination of double taxation of dividends would have helped change the climate on Wall Street. Without the double taxation, some Wall Street experts figured companies would generate more dividends-putting real money in the hands of real investors-instead of concocting schemes to inflate stock prices.
Will half a cut help? The team at Bush-Cheney 2004 is hoping so.