/www.bloomberg.com/ By Holly Rosenkrantz
Washington, Jan. 8 (Bloomberg) -- George W. Bush may be risking chances for re-election with his $670 billion tax-cut proposal because the president is assuming responsibility for boosting the U.S. economy, analysts said. Democrats said the plan will fuel deficits and benefit the rich.
The 10-year economic plan Bush unveiled in Chicago yesterday would end taxes on stock dividends and accelerate income tax cuts enacted in 2001. ``I proposed a bold plan because the need for this plan is urgent,'' he said.
Bush, who has said his top priority is protecting the U.S. from Osama bin Laden's terror network and Iraq's weapons of mass destruction, is seeking to avoid the fate of his father, whose Persian Gulf war victory in 1991 was followed by a recession and re-election defeat to Democrat Bill Clinton.
``It's a huge gamble for him because it means he can no longer say the economy is Clinton's fault or Osama's fault,'' said Stan Collender, a budget analyst at the consulting firm Fleishman- Hillard Inc.
``He gets credit for trying, and he's courted with this proposal the base of his party who he needs right now for his re- election prospects,'' Collender said. ``Longer-term, it's not as certain if this will pass and if this will work.''
Some of Bush's proposals, such as the elimination of the tax on stock dividends and speeding up tax cuts set to take effect between now and 2010, may not make it through both chambers of Congress. Bush will have to compromise with Democrats in the Senate, where Republicans hold 51 seats, shy of the 60 they need to avoid debates that may delay passing the legislation.
`Wish List'
Democrats called Bush's plan misguided and too costly. Connecticut Senator Joe Lieberman, who may run for president in 2004, called it ``an irresponsible, ineffective and ideologically driven wish list'' that's ``unfair and unaffordable.''
Senate Democratic leader Tom Daschle cited the plan in announcing his decision to forgo a White House race; he said dealing with the plan in the Senate is the best way he can influence public policy.
New Jersey Senator Jon Corzine, a former Goldman, Sachs & Co. chairman, say tax dividend repeal would swell federal deficits and ``grossly undermine our fiscal stability.''
Some Republicans also signaled Bush may need to scale back his plan.
``We must seek the balance needed to build bipartisan support on a stimulus plan'' that will also be ``fiscally responsible,'' said Senator Olympia Snowe, a Maine Republican who has been a swing vote on fiscal issues. ``At a time of growing federal deficits, it is especially important that this plan be right- sized, without putting our future at risk.''
Deficits vs Growth
The U.S. posted a $159 billion deficit in fiscal year 2002, ending four years of budget surpluses, the longest string since before the Great Depression. The Congressional Budget Office in August forecast a $145 billion deficit for the year that started Oct. 1, 2002.
Goldman forecast a $260 billion deficit this fiscal year and will boost the estimate to reflect Bush's plan, said Jan Hatzius, a Goldman economist. ``There is no free lunch,'' he said.
Bush ``views the risks to the economy as coming from lack of growth'' rather than a growing deficit, White House spokesman Ari Fleischer said. ``If people have the belief that a deficit or a surplus in itself drives growth, then we differ with that.''
`Stakes are High'
Bush is trying to improve an economy that 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. That's about a third the average 4 percent annual growth rate of 1996-2000.
``The stakes are high'' for Bush to show that he can improve the economy, said Charles Gabriel, senior political analyst at Prudential Securities Inc. ``If things go bad with the economy, this could hurt really hurt him down the road when it matters.''
Lawmakers from both parties may expand Bush's tax and unemployment aid package beyond the $674 billion he's proposing ahead of the 2004 elections.
Democrats, having ``already pushed the case that Bush is bad on the deficit,'' will want to add proposals that benefit the lower-income Americans that comprise their political base, Collender said.
``When you factor in the costs of the inevitable prescription drug benefit that will be proposed, they're going to be adding a trillion dollars worth of spending, and that's before all the new spending that they're going to want for political points,'' said Gabriel.
A Starting Point
A group of 70 self-described conservatives yesterday circulated a list of possible tax cuts they want to add to the proposal, including reducing or eliminated the levy on capital gains.
``I see the president's package as a floor, not a ceiling,'' said House Majority Leader Tom DeLay, a Texas Republican.
It will be ``late March, early April'' before tax cuts can be enacted by Congress, said Charles Grassley, the Republican chairman of the Senate Finance Committee. He said he expects to make changes in the bill to win Democratic votes.
That may be an optimistic timetable, said Robert Hormats, vice chairman of Goldman Sachs International. Democratic opposition to ending the tax on dividends -- at a cost the White House estimates at $364 billion over 10 years -- and to the scope of the overall plan will slow congressional action, he said.
``They put that full elimination in knowing they will have to compromise,'' Hormats said. ``Democrats can make the case that it doesn't give much bang for the buck as far as stimulus, since it goes to people who are less likely to spend it,'' he said.
Boosting the deficit could hurt Bush if it leads to higher interest rates, Hormats said. ``There will be some people who say he was too ambitious,'' he said.
Bush is calculating that voters care less about the federal budget deficit than they do about the overall economy, and he's won points with Republicans who want more tax cuts, analysts said.
The proposal is ``the best Bush tax bill yet,'' said Stephen Moore, president of the Club for Growth who had initially told the White House that Stephen Friedman, Bush's new economic adviser, was too focused on the deficit.
Bush has ``won over the right-wing, the base he needs at this early stage of the presidential race for energy, and he's won over the big political contributors, since they stand to reap the biggest benefits from this plan,'' Collender said.
``The money people are the ones he needs at this stage,'' said Collender. ``He can worry about the middle of America later.''