Protecting Tax-Cut Plan Will Be Trying Task for Grassley

0 Comments | Insight on the News, April 16, 2001 | by Jamie Dettmer

He has been described as combining political shrewdness with a seeming naivete, and he likes to refer to himself as "just a hog farmer" from Iowa, where his son now cultivates the family farm. Sen. Charles Grassley will need that shrewdness and disarming naivete in the high-stakes confrontations of the next few weeks.

As the Republican chairman of the Senate Finance Committee, it is Grassley's task to steer President George W. Bush's $1.6 trillion tax-cut plan through a fractious upper chamber that's tied evenly between the parties. A defeat of the president's proposal would rob the Bush White House of tax cuts that are the jewel in its policy crown.

The pressure on Grassley doesn't show. Speaking to political notebook on March 19, the day before the Federal Reserve cut interest rates for the third time this year, the Iowa senator remained his normal outspoken self, saying flatly that Fed Chairman Alan Greenspan is to blame for the economic downturn.

Asked what percentage cut he would like to see the Fed announce the following day, Grassley had no hesitation. "One percent," he responded. Asked whether that was likely, he conceded one word -- "No." And then added: "Greenspan is too cautious."

Grassley isn't a stranger to being in a minority of one, and he holds to his conservative convictions, believing in the importance of thrift and honesty. But by the next day, his criticism of Greenspan's cautiousness had become conventional wisdom. The incremental cut of one-half percent in interest rates announced by the chairman also failed to satisfy Wall Street and probably most economists, who argue the reduction was not aggressive enough if the Fed wants to save the economy from plunging stock markets and ward off a recession.

Not that Grassley is for substantial tax cuts only because of the economic slowdown. He sees it as right that taxpayers keep more of their own money. "You can spend it better than I can," he says.

The abrupt halt to America's decade-long expansion is spooking Congress. Under pressure from market turmoil and the economic slowdown, splits are increasing among Senate Republicans concerning the scale and timing of the tax cuts. Some argue for larger overall cuts, others maintain that reductions should be more front-loaded to provide a stimulus to the ailing economy -- and some want both.

Grassley acknowledges that his task is made that much harder by the Republican divisions, noting that Senate Democrats are far more united. "With Republicans, there are 46 different plans," he quips. "We've got a lot of work to do."

He says that while he believes the United States could afford larger tax cuts, his objective must be the practical one of accomplishing the possible. For that reason, the $1.6 trillion must be the ceiling, "though I am not discouraging people to ask for more," he adds.

"There are conservatives on one side who see balancing the budget as the most important thing, and there are other conservatives who see tax cuts as the priority," Grassley says, underlining the constraints that hedge him. He implies his job is to keep the president's proposal basically intact lest it unravel.

That isn't to say he's inflexible. Grassley does believe some changes should be made. He is sympathetic to mounting bipartisan concern that the alternative minimum tax (AMT) threatens to deprive millions of Americans of the full benefit of a promised tax cut. Designed several years ago to keep the tax-savvy super-rich from escaping taxes altogether, the AMT has not been indexed for inflation. While only 1.5 percent of taxpayers currently are affected by it, under Bush's tax plan the number might unwittingly rise to one-third.

Americans shouldn't "get a tax cut with one hand and a tax increase on the other," Grassley says. The Iowa Republican supports reshaping the AMT and insists a fix must be made. He tells Insight he intends to ensure that the AMT doesn't catch blue-collar and middle-income Americans by the throat. "We should be able to help those families earning up to $125,000 and possibly even more," he says.

The finance panel chairman also has sympathy for front-loading the tax cuts but says it "should be within the $1.6 trillion." Yet he casts doubt on the notion that tax cuts can do much to stimulate the economy into health, arguing that monetary policy and interest rates play a greater role in turning things around.

"We have a liquidity problem now," Grassley says. He sees Greenspan as partly responsible for that. "He shouldn't have increased interest rates last year," the finance chairman says, maintaining that Greenspan cooled the economy too quickly. Aside from the Fed chairman, Grassley saves most of his irritation for the Democrats. He insists they have seized on the argument that the economy urgently needs a fiscal stimulus as part of their campaign to reduce the size of the overall tax cut.

And on a broader note, this powerful chairman says he will press Treasury Secretary Paul O'Neill to reform the International Monetary Fund (IMF). Grassley remains critical of how it has evolved into a body that "bails out bankers who make bad investment decisions." Asked whether there should be more IMF aid to Turkey, for instance, and whether the administration should encourage more assistance, he says no, arguing that the IMF wrecks economies with its stringent prescriptions.