Tax Cuts at Risk Jude Wanniski March 25, 2003

Yes, the war is not going as planned and that is causing mayhem on Wall Street, but the good news we had last Friday on the Budget Resolution is making a major contribution to the meltdown in equities. Instead of locking up the gains Friday, which would have made possible elimination of the double-tax on dividends, the Senate decided to lock in a vote for 4 PM Wednesday in exchange for allowing more amendments to the Resolution. The GOP leadership made the deal just so it would not have to remain in session to complete work on the bill, wanting to go home for the weekend. 

Unless there is a spectacular turnaround on the battlefield, this means the voting will be in a completely different kind of atmosphere, where the arguments about paying for a long war will have more resonance. Especially when the Democrats will argue that the tax cuts will go to rich folks while poor folks are the casualties of war. It will be a miracle if the resolution -- which now permits a $600 billion tax cut over five years when that legislation comes to the floor from the Finance Committee -- can survive at that level. The House passed a BR allowing for $726 billion, but if the Senate carves a big chunk out of the $600 billion, there will be a conference report making it impossible to do much more on the dividend tax, which alone would cost $350 billion on static analysis.

The war is now likely to go on for a long time as the administration hopes of massive desertions are not occurring. Unlike 1991, when Iraq had essentially surrendered before Desert Storm began, this time the Iraqi army is using all the experience it gained in its eight-year war with Iran. And where the U.S. spent weeks in 1991 bombing an Iraqi army exposed in the Kuwait desert, its hands are now tied on airpower out of concern of slaughtering the very civilians it is supposed to be liberating.