Canton Repository

May 23, 2003

Ohio senator defends tax cut

By PAUL M. KRAWZAK
Copley Washington correspondent

WASHINGTON — Sen. George Voinovich, R-Columbus, on Thursday denied that he yielded to political pressure when he voted for a tax cut earlier this week that critics say would exceed a $350 billion cap he vowed to protect.

Voinovich also said he will support a more recent version of the tax cut endorsed by the White House and Republican congressional leaders. It, too, would add more than $350 billion to the federal deficit, critics say.

“My response is that many of the people who are making that argument wanted no tax reduction, no tax reduction, and as a result of that I believe many of them are making a big issue out of this,” he said as GOP leaders pushed to get the plan approved by Congress before Memorial Day.

President Bush has made the tax cut, which he argues would stimulate economic growth and create jobs, a top priority.

Republican House and Senate leaders finished work on a deal Thursday that would cut taxes on dividends and capital gains to a maximum of 15 percent until 2009, when those taxes would revert to pre-existing levels. The plan also would temporarily increase the child-tax credit and business tax breaks while speeding up income-tax reductions approved two years ago.

Voinovich, who prides himself on being a deficit hawk, at first won acclaim from many observers when he insisted earlier this year that he would not support any plan that added more than $350 billion to the growing federal budget deficit.

The praise quickly turned to anger and disdain after Voinovich provided the decisive vote last week to approve a tax cut that formally carried a $350 billion price tag but that many believe would cost much more.

That plan would keep the cost of the tax cut at $350 billion by restoring the full tax on dividends in 2007, after eliminating the tax through 2006. It also would increase tax deductions for businesses, only to shrink them again in 2008.

Newspaper editorials and Democratic political operatives have lambasted the former Ohio governor for backing a tax cut that they say inevitably would exceed his pledge. The provisions rolling back, or “sunsetting,” the tax cuts are highly unlikely to be honored, they argue.

“We know that the price tag is fake because the back-room negotiators are intent on putting an artificial sunset on the tax cuts, an expiration date that they know is not real but makes it appear as if a tax cut does less damage to our fiscal situation,” Rep. Charles Rangel, D-N.Y., asserted as the latest deal was being worked out.

“No future Congress will want to take responsibility for that tax increase, and so, the real cost of the bill is actually hundreds of billions more than the Republicans will admit,” he said.

Since making his initial stand, Voinovich had faced pressure from the administration and GOP leaders to agree to a larger tax cut. When he voted for the Senate version, he lost the backing of many who had supported his earlier stand.

“I must say I was concerned from a political point of view,” he acknowledged. “I like our president. I try to be a team player and I would not have liked to have been in a position where I’d have been the vote that brought the whole thing down.”

The latest deal is as filled with sunset provisions, or expiration dates, as the earlier Senate plan.

Voinovich’s support of the House-Senate compromise is considered indispensable for its passage. Sen. Olympia Snowe, R-Maine, initially stood with Voinovich in opposing a higher tax cut. But she split with him when she voted against the Senate plan last week. Snowe said the temporary nature of the dividend tax cut would create uncertainty among investors.

The Center on Budget and Policy Priorities, an advocacy group opposing the tax cut, charged that the latest proposal could cost $810 billion to $1.06 trillion if the tax cuts are renewed when they expire.

Analysts from varying points along the ideological spectrum were equally skeptical that the tax cut will truly cost just $350 billion.

“We’re supposed to believe that ... after five years of having substantially reduced taxes on capital gains and dividends, all of a sudden we’ll flip back to very high taxes on capital gains and dividends?” wondered a doubtful Peter Orszag, an economist at the traditionally liberal Brookings Institution.

The recent history of tax cuts with expiration dates is that “they have typically been renewed,” he said.

Chris Edwards, an economist at the libertarian Cato Institute, said it will be “very difficult” for Congress to repeal the higher child tax credit and dividend tax cuts “except perhaps under the rubric of broad general tax reform.”

Voinovich’s response has been that he supports sunset provisions, the scheduled expiration of laws, which he said force Congress to review their impact and decide if they should be renewed.

“Quite frankly, if things are flying along there’s a good possibility that they may not be sunsetted,” he said of the tax cuts in the event the economy is strong.

But Voinovich added that he has “no idea what the economics is going to look like (then), let alone next year.”

Would voting to extend expiring tax cuts violate his pledge to oppose a tax cut higher than $350 billion?

“That’s really speculative,” he said Thursday. “I’ve taken the position that I wanted $350 (billion) today and they respected that. But I’m not going to commit myself to something five years from now or 10 years from now.”