/www.bloomberg.com/ By Alex Canizares
Washington, (Bloomberg) -- U.S. Senate Majority Leader Bill Frist said President George W. Bush may have to compromise on portions of his tax-cut plan as some lawmakers press to add aid to states or scale back a dividend tax repeal.
Frist disagreed with critics such as Republican Senator John McCain and Democratic Senator Tom Daschle, who say Bush's $674 billion proposal is too biased toward high-income taxpayers and would increase the deficit. The Tennessee Republican said Bush's 10-year plan balances short- and long-term economic needs and eventually will win over some opponents.
``I'm in the business of pulling people together as we go forward, so I'm not going to say I've got all the answers,'' Frist said on NBC's ``Meet the Press'' program.
Administration officials including Vice President Dick Cheney and White House economic adviser Stephen Friedman have been promoting the plan to Wall Street and Congress since Bush announced it last Tuesday. They'll need support from most Republicans and at least some Democrats in the Senate, which is divided in favor of Republicans 51-48 with one independent.
Louisiana Senator John Breaux, who was among 12 Democrats to support Bush's 2001 $1.35 trillion tax-cut, said the current proposal lacks enough support to pass the Senate, where 60 votes are needed to keep opponents from blocking legislation by extending debate, or filibustering.
``I think the White House knows it's going to have to work with us,'' Breaux said on CBS's ``Face the Nation'' program.
Dividend Tax
Critics have targeted the biggest single component of Bush's proposal, eliminating the tax that investors pay on corporate dividends. Senate Finance Committee Chairman Charles Grassley, an Iowa Republican, said last week that may be too costly.
Breaux said only 8 percent of his constituents receive dividends. ``That doesn't help a lot of people,'' he said. ``So let's pare that down.''
Breaux called for making tax-free the first $500 that a shareholder receives in dividends. He also proposed giving more help to low- and middle-income earners by making the first $6,000 of income exempt from taxes.
U.S. Commerce Secretary Don Evans said eliminating the so- called double taxation on dividends was ``absolutely a key element'' of the plan. Bush has said the tax is unfair and the repeal would boost the economy by $20 billion this year.
Other Ideas
``We're going to fight real hard to see that is passes as is,'' Evans said on the Cable News Network's ``Late Edition.'' ``But there's a process and (the) leadership of the House will have some ideas; leadership in the Senate will have some ideas.''
Frist, when asked on NBC on whether he's willing to compromise on the dividend tax cut, answered, ``Well of course.'' Still, he said he favors total repeal and would fight for that.
``It's a moral issue, principally,'' he said on NBC. ``You shouldn't be taxed twice.''
Another potential area where lawmakers may seek a change, he said, is adding aid to state governments that are facing budget shortfalls because of declining tax receipts and higher costs.
Other elements of Bush's plan would speed up income tax rate reductions and child care tax credits that were part of his 2001 tax cut, and increase limits on write-offs for small businesses who buy equipment and software.
Daschle said Democrats are united in opposition, and several Republicans, including McCain, Senators George Voinovich of Ohio, Lincoln Chafee of Rhode Island and Susan Collins of Maine have expressed concern about the cost and impact on deficits.
`Reckless' Policy
``We're going to have a lot more votes than we did'' on the 2001 tax cuts, Daschle said on ABC's ``This Week.'' ``It just seems to me this is one of the most reckless fiscal policies this president or any president's put forth in many years.''
Frist, who replaced Senator Trent Lott as majority leader in the new session of Congress that started last week, said he'll fight for the plan as proposed by Bush.
``At the end of the day, I am confident that in a bipartisan way, just like in 2001, when we passed this last tax plan, that we will have support to pass it,'' he said on ``Fox News Sunday.''
House Democrats have proposed an alternative $136 billion plan that includes a $300 tax rebate for individuals, $31 billion in aid for states to pay for homeland security measures, and $32 billion worth of tax breaks to encourage business investment.
Evans said in an interview last week that Bush's proposal would add 0.6 percentage points to the U.S. economy this year, and 0.9 percentage points in 2004.
The economy probably grew at an annual rate of 1.5 percent in the final three months of last year, according to the median estimate of 71 forecasts in a Bloomberg News survey last month. The U.S. Labor Department reported last week that the economy shed 101,000 jobs in December alone.
Evans the effect on the federal budget deficit will be ``manageable'' because the tax cuts will promote economic growth. The government recorded a $158.5 billion budget deficit for the fiscal year that ended Sept. 30, 2002.
Economist Richard Berner of Morgan Stanley on Friday forecast a federal deficit of about $275 billion in 2003, $350 billion in 2004, and $275 billion in 2005; Barclay's Capital Inc. last week projected a $350 billion shortfall.