Conservatives doubt fervor of Bush team to cut taxes

WASHINGTON -- President Bush, who shook up his economic team in an effort to get better salesmen for new tax cuts, drew fire Wednesday from conservative Republicans upset that the new team may not have sufficient tax-cutting fervor.

The debate echoes a battle that has raged in the Republican Party since Ronald Reagan's days and highlights the political minefield Bush will have to navigate in selling Congress on his new stimulus proposals, which are expected to include as much as $300 billion in new tax cuts.

It is a battle between GOP supply-siders, who believe that tax cuts can actually spur government revenue by increasing incentives to work, and fiscal conservatives, who take the more traditional economic view that cutting taxes without matching cuts in government spending can lead to exploding budget deficits.

"Clearly, there is a struggle for the soul of the Republican party," said Stephen Moore, a supply-side economist and president of the Club for Growth.

The conservatives had expressed some concerns about past statements of Treasury Secretary nominee John W. Snow, who chaired an anti-deficit commission of business leaders in the mid-1990s. But they were mollified by Snow's endorsement of further tax cuts when Bush on Monday announced his selection to replace Paul O'Neill.

Unhappy with Friedman

But the supply-side camp is still unhappy with Stephen Friedman, Bush's choice to replace Lawrence Lindsey as head of the president's National Economic Council, and they are conducting a furious lobbying campaign to get the decision reversed.

So far, the administration says the president is sticking by Friedman. White House officials blame the delay in making the formal announcement on the time it is taking White House lawyers to review the extensive financial holdings of Friedman, who is the former co-chairman of investment banking giant Goldman Sachs.

But Friedman's opponents are hoping the delay means Bush is having second thoughts. In the eyes of the supply-siders, Friedman's views are entirely too close to those of his fellow co-chair at Goldman Sachs, Robert Rubin.

As Bill Clinton's Treasury secretary, Rubin was a leading advocate for attacking the huge deficits of past Republican administrations with a combination of tax increases and spending cuts, lowering the government's borrowing needs and freeing up capital for business investment.

The supply-siders point to Friedman's membership in the anti-deficit Concord Coalition as proof of where his inclinations lie.

"The Concord Coalition represents the Chicken Little deficit reduction myopia that was once the rage in the Republican Party before someone by the name of Ronald Reagan came along and thankfully converted the GOP into a tax cutting party," Moore wrote Wednesday on the Web site of the conservative National Review magazine.

O'Neill's irony

Ironically, one of the factors that supposedly led to O'Neill's ouster was his reluctance to endorse another round of broadbased tax cuts out of concerns that rising deficits needed to be trimmed. His concerns were pitted against Lindsey, the administration's top supply-side economist, who argued that further tax cuts were needed.

After running four years of budget surpluses from 1998 to 2001, the longest stretch in the black in seven decades, the budget fell back in the red last year with a $159 billion deficit. Last week, the Congressional Budget Office warned that without corrections those deficits could climb to more than $500 billion annually by 2012.

Private economists say that while Bush is right to be searching for quick-acting tax cuts to give the economy a boost next year, they argued that the president's package should not do anything to worsen the government's long-term budget outlook.

"It's okay to run deficits when the country is in a recession, but when the economy starts growing again and corporations want to start investing, the government shouldn't be sucking up all the available capital," said David Wyss, chief economist at Standard & Poor's in New York.

Many analysts said Bush is caught in the same economic battle as his father. When the senior Bush was running against Ronald Reagan for the Republican presidential nomination in 1980, he derided the supply side theory as "voodoo economics" only to become a convert during eight years as Reagan's vice president.

However, when he became president, the soaring budget deficits caused the senior Bush to go back on his "read my lips, no new taxes" pledge and embrace a tax increase in 1990.

"That decision by the elder Bush was key to the decade of deficit reduction that followed," said Mark Zandi, chief economist at Economy.com. "But now that we are in a new decade, the debate seems to be raging again."