Tax Decoding

By Dan Froomkin
Special to
Thursday, November 18, 2004; 11:55 AM

Fascinating -- and sometimes conflicting -- hints are finally starting to emerge about how President Bush might pursue his amorphous promise to rewrite the tax code.

The Washington Post reports today on one idea being floated by Bush advisers: Cutting taxes on savings and investments, and making up for the loss in revenue by eliminating the individual state and local tax deduction and killing the business tax deduction for employer-provided health insurance.

That could certainly stir up a hornet's nest today.

Meanwhile, the Wall Street Journal sees a go-slow approach possibly resulting in the cutting of individual taxes on investment income being paid for by the elimination of the business tax deduction for interest payments.

And the Financial Times reports on Bush's private meeting Tuesday with bank executives in which he reportedly assured them he is serious about deficit-reduction but didn't say anything specifically about the tax code at all.

There's also much talk about what seems to be an inevitable shake-up of the Bush economic team. And, for a change, it would likely involve bringing in some outsiders.

Let the Hinting Begin

Jonathan Weisman and Jeffrey H. Birnbaum write in The Washington Post: "The Bush administration is eyeing an overhaul of the tax code that would drastically cut, if not eliminate, taxes on savings and investment, but it is unlikely to try to replace the existing tax code with a single flat income tax rate or a national sales tax, according to several sources familiar with ongoing tax deliberations. . . .

"Just after the election [Bush] signaled that tax policy would be a centerpiece of his domestic agenda, reiterating his pledge to name a bipartisan panel to draft a fundamental tax reform proposal. . . .

"But before the tax panel is even named, administration officials have begun dialing back expectations that they will move to scrap the current graduated income tax for another system."

If you decrease taxes on investments and savings, and you want to keep things revenue neutral, you either have to increase taxes on income or on spending.

Weisman and Birnbaum say the current thinking calls for "eliminating the deduction of state and local taxes on federal income tax returns and scrapping the business tax deduction for employer-provided health insurance, the advisers said."

Although, they add: "White House aides warn that no decisions have been made."

As far as trial balloons go, however, this one has some diabolically clever politics to it. Consider who would be the big losers if state and local tax deductions were eliminated: People living in high-tax, high-services cities, counties and states. Most of those, I'm willing to bet, are blue-voter territory.

As for reducing the incentive for employers to provide health insurance, I guess that the ensuing loss of health coverage would -- among other things -- increase demand for tax-free health savings accounts?

Not surprisingly, readers at the liberal Daily Kos and Eschaton blogs are already going ballistic.

David Wessel writes in the Wall Street Journal's Capital column that "there are strong signs" that a "panel of outside experts, still to be named" will be sifting through options "for a while. The panel will weigh radical alternatives to the income tax, but the smart money is on the White House pushing significant, but less unsettling, changes to the current code, if it pushes anything."

Wessel calls attention to the "comprehensive business income tax," or CBIT, crafted in the first Bush administration. "In this approach, interest paid by corporations, dividends paid on shares of stock and capital gains from the sale of stock would be tax-free to individuals. Companies no longer would be able to deduct interest payments."

David Wells, James Harding and Chris Giles write in the Financial Times: "President George W. Bush played host to the heads of several top US banks at a private meeting in the White House this week, in an effort to persuade the markets of his commitment to deficit reduction. . . .

"Vice President Dick Cheney, political strategist Karl Rove, chief of staff Andrew Card, outgoing commerce secretary Don Evans and the White House economic team were also present for the talks with the heads of Merrill Lynch, Goldman Sachs, Bank of America, Wachovia, Credit Suisse First Boston, Morgan Stanley, Citigroup, and American Express. . . .

"One Bush administration official briefed about the meeting said there was no specific purpose except 'to reach out and reassure them that the deficit is high on the list of priorities. It has to permeate everything'.

"The participants left with the impression that the White House's thinking on Social Security reform was more advanced than its plans for addressing the tax code, according to people familiar with the conversation."

Economic Staff Changes

Weisman and Birnbaum write: "To shepherd through its second-term agenda, the administration is seeking new muscle for its economic team. President Bush's top economist, N. Gregory Mankiw, will likely be leaving early next year, as will his economic policy director, Stephen Friedman.

"White House officials are pursuing prominent Massachusetts Institute of Technology economist James Poterba to replace Mankiw at the Council of Economic Advisers, according to several White House economic advisers. Tim Adams, the policy director of Bush's reelection campaign, is a top candidate for Friedman's job, but he has also been mentioned as a deputy White House chief of staff for policy or deputy Treasury secretary. . . .

"Princeton University economist Harvey S. Rosen briefed Bush last week on tax overhaul options and may be named executive director of the soon-to-be-named bipartisan panel on tax reform."

Caren Bohan and Adam Entous write for Reuters: "President Bush, who swiftly reshuffled his foreign policy team . . . is planning a more gradual overhaul of his top economic staff, people close to the White House said.

"Treasury Secretary John Snow has told associates he wants to stay in the job for at least six months to a year longer to launch Bush's tax-overhaul proposal, which means there will be stability in the top job on the economic team for a while."

Possible personnel changes they reported are Kevin Hassett, an economist at the conservative American Enterprise Institute, as a possible successor to Mankiw, and Glenn Hubbard, the former head of Bush's Council of Economic Advisers, as a possible successor to Federal Reserve Chairman Alan Greenspan.

The Circle Continues to Tighten

Janet Hook and Warren Vieth write in the Los Angeles Times: "Despite promises to reach out to adversaries in the wake of his election victory, President Bush is assembling a second-term Cabinet that so far seems to reflect the dictum: Only longtime loyalists need apply. . . .

"Republicans close to the White House say that reflects the president's determination to act aggressively on his second-term priorities and to reinforce the storied discipline of a White House where internal disputes have been kept largely from public view. His appointments also could consolidate the president's power, solidify his conservative agenda and reduce the possibility that Cabinet agencies might undercut administration policy during his second term. . . .

"But some critics and nonpartisan analysts say that Bush risks exacerbating one of the perceived pitfalls of his first term: His apparently limited tolerance for dissent, which some critics say contributed to poor planning for the stabilization and reconstruction of Iraq."

Bob Kemper writes for Cox News Service: "In nominating Condoleezza Rice to replace Colin Powell as secretary of state, President Bush made clear that he believes many of America's problems abroad are the result not of his policies but of the ineffectiveness of those entrusted to carry them out.

"The president has used a second-term staff reshuffling to tighten his control over national security and foreign policy entities, including the State Department and CIA, that some of his closest White House advisers believe have been openly hostile to his policies in Iraq and elsewhere."

Washington Monthly blogger Kevin Drum looks at my soon-to-need-updating West Wing floor plan and concludes that "sometimes conventional wisdom is right. Keeping an eye on the people with the biggest offices really can pay off."

The Miers Elevation

Dana Milbank writes in The Washington Post: "President Bush yesterday named longtime friend and former Texas lottery official Harriet Miers to be the chief White House lawyer.

"Miers, 59, once described by Bush as 'a pit bull in size 6 shoes,' came to Washington with Bush in 2001 and served as staff secretary and a deputy chief of staff during the president's first term. As White House counsel, she will succeed Alberto R. Gonzales, recently nominated to be attorney general.

"The appointment continues a pattern by Bush of promoting confidants and close aides to prominent positions. . . . Miers, who is unmarried, built a reputation for cool intensity while serving as Bush's gatekeeper early in his term. Her status as friend and adviser to Bush when he was a candidate and Texas governor has made her one of his favorite aides and earned her invitations to Camp David."

Maura Reynolds writes in the Los Angeles Times: "Miers came to Washington with Bush from Texas, serving first as White House staff secretary and then as deputy chief of staff. She has been one of the president's most loyal but least visible top aides: As staff secretary, she managed daily operations inside the West Wing, including the paper flow to the president. As deputy chief of staff for policy, she oversaw domestic policy development. Along the way, she earned a reputation as a devoted and meticulous associate."

Terence Hunt writes for the Associated Press: "Miers is often one of the first staff members to arrive at the White House in the morning and among the last to leave. She enjoys an especially close relationship with Bush, and she is sometimes the only woman on the brush-clearing excursions at his ranch in Crawford, Texas."

Here's a White House photo of Miers with Bush on his ranch.

Here's Bush's statement about Miers.

The Spellings Appointment

Bush made it official yesterday and nominated his top domestic policy adviser, Margaret Spellings, to head the Department of Education.

Michael Dobbs writes for The Washington Post: "As Bush's senior domestic policy adviser, Spellings has wielded power over the past four years extending far beyond her long-standing interest in public education. She is one of a small group of aides who arrived with him from Texas and appear to enjoy his complete confidence. But for all her behind-the-scenes influence, she is relatively unknown to the public and is rarely quoted in the media. . . .

"Yesterday, Spellings choked up with emotion as she spoke of her commitment to public education. Bush, who is said to regard her as family, put his hand gently on her back."

Diana Jean Schemo writes in the New York Times: "Education advocates, lawmakers and others predicted that Ms. Spellings's long and close tenure at Mr. Bush's side would raise the profile of education in a second Bush term. . . .

"In the White House, Ms. Spellings's office was down the corridor from that of Karl Rove, the president's chief political strategist, who first introduced her to Mr. Bush when he was running for governor of Texas in 1994. At the White House ceremony announcing her nomination, Mr. Rove, who said he was once 'brutally' turned down after asking Ms. Spellings for a date in the 1980's, called her 'an incredible, special person,' adding, 'She has a passion for education.' "

Gail Russell Chaddock writes in the Christian Science Monitor: "A close Bush aide for the past decade, most recently as assistant to the president for domestic policy, Ms. Spellings couldn't be picked out of a lineup by most of the nation's teachers, yet has had more to do with the new mandates in their classrooms than anyone in Washington. She also has the quality most valued in the Bush White House: unquestioned loyalty."

Here's the text of the announcement, and the video.

Other Move News

Milbank reports: "Meanwhile, Sen. Ben Nelson (D-Neb.) was sounded out Friday by Karl Rove, Bush's chief political adviser, about becoming secretary of agriculture, Senate sources said. In remarks to reporters, Nelson declined to say whether he had been offered the job or whether would take it. According to CNN, some Democrats said the administration may be trying to open the Nebraska Senate seat to a Republican."

Confirmation Watch

Eric Lichtlblau writes in the New York Times: "Alberto R. Gonzales's confirmation as attorney general appeared all but assured Wednesday after he met with a leading Senate Democrat, who predicted that Mr. Gonzales would win Senate approval despite his stances on the Geneva Conventions and other contentious legal issues. . . .

"Some Democrats and liberal advocacy groups that have been critical of Mr. Gonzales's legal positions said they did not want to take on a fight they would likely lose and wanted to save their political resources for what is likely to be a major battle if and when President Bush has a Supreme Court vacancy to fill."

Senate Democrats did say, however, that "they intend to press Mr. Gonzales about whether he plans to recuse himself from oversight of Justice Department investigations that involved his role at the White House. The most prominent example is the investigation into the disclosure of a C.I.A. officer's name, a case in which Mr. Ashcroft recused himself and in which Mr. Gonzales testified before a federal grand jury in June."

Alex Keto writes for Dow Jones Newswire: "Referring to White House Counsel Alberto Gonzales's nomination to be the next attorney general, Sen. Patrick Leahy, D-Vt., joked, 'the president, with the majority he has in the Senate, could have sent up Attila the Hun and got him confirmed.'

"Leahy quickly added he didn't consider Gonzales to be a right-wing barbarian and said it was smart for the president not to choose a nominee that would have alarmed Democrats.

" 'Judge Gonzales is no Attila the Hun; he's far from that, and he's a more uniting figure,' Leahy said. 'The president could have picked a polarizing figure; he did not. I applaud him for that.' "

Valerie Plame Watch

A new clue from the mysterious investigation of who leaked CIA operative Valerie Plame's name after her husband, former ambassador Joseph C. Wilson IV, criticized the administration's argument for going to war in Iraq.

Carol D. Leonnig reports in The Washington Post that U.S. District Chief Judge Thomas F. Hogan yesterday "said the focus of Fitzgerald's investigation has shifted unexpectedly."

The comment came as he "refused to quash a subpoena seeking the testimony of Time magazine reporter Matthew Cooper and ordered him to answer questions before a grand jury investigating whether Bush administration officials illegally leaked the identity of a CIA operative to the news media."

Fulsome Praise

Reader Ted Nisi calls my attention to this letter to the editor of the Boston Globe from Vipan Chandra, who writes:

"Secretary of State Colin Powell's statement that he had decided to resign after 'good and fulsome discussions' with the president drew an instant burst of laughter from me, since the word fulsome means loathsomely and insincerely extreme, not full or thorough as intended by the unwitting secretary. Picturing the equally diction-challenged George W. Bush nodding in appreciative agreement with Powell's words creates a comic effect.

"But then again, is it possible that because of his well-known yet hitherto-papered-over policy differences with his war-mongering boss, Powell had simply succumbed to a Freudian slip of the tongue?"

Here's a copy of Powell's resignation letter. And here's the dictionary definition of fulsome.

Talking Turkey

Neely Tucker writes in The Washington Post about the spectacle of the Rose Garden turkey pardon.

"[D]ozens of international reporters, photographers and television cameramen documented the 15-minute presidential pardoning, the chief feature of which was Bush sort of throttling the turkey."

Neely notes that commercially raised turkeys "are genetically altered to grow so fast and so big that none of them can fly, or reproduce without artificial insemination, and they can barely stagger about the barnyard without keeling over from a heart attack. If not plucked for Thanksgiving or Christmas, they often die within two years.

"None of the previously pardoned turkeys, for example, is still alive."

Here's the transcript and the video of the joke-filled event.

Speaking of Pardons

Much less publicity accompanied yesterday's presidential pardons of people.

The Associated Press reports: "President Bush granted pardons Wednesday for six people, including one man convicted 41 years ago for a stolen vehicle offense in Mississippi.

"The president has now pardoned 25 individuals since taking office in January 2001 and he has commuted the prison sentences of two other people.

"Among those pardoned Wednesday was Richard Arthur Morse of Rowley, Mass., who was sentenced to five months in jail in 1963 in Mississippi for interstate transportation of a stolen vehicle."

The Pittsburgh School of Law has a FAQ on pardons, which explains: "At the Constitutional Convention in Philadelphia the Framers appear to have accepted the argument that the prerogative of mercy, upon which the pardon power is based, is most efficiently and equitably exercised by a single individual, as opposed to a body of legislators or judges."

Presenting the Medals

Jacqueline Trescott writes in The Washington Post on the presentation at the White House yesterday to recipients of the National Medal of Arts and the National Humanities Medal, which "go to an influential set of writers, scholars and artists. The arts and humanities endowments and the White House select the honorees, with suggestions from the public. This year's list was finalized after the election."

Here's the list of recipients.

Kisses From the President

USA Today asked its "pop culture panel" about the recent spate of presidential kisses: the Condoleezza Rice peck and the Margaret Spellings full-on lip-smack.

Kimberly Kaiser of Dallas, Tex. said: "I have to admit that I was taken aback for a few seconds when I saw the picture of Bush kissing Rice on the cheek. But, after thinking about it, I just thought that it was similar to how people greet other people in other nations. I have not seen the picture of him kissing Spelling on the lips! That's just out of line -- period. It's one of those moments when you have to ask yourself, 'What was he thinking?' Less than a small kiss has been perceived as sexual harassment in the workplace in the past. (FYI: I like Bush and voted for him.)" (Note: The attribution for this quote has been corrected. In earlier versions of this column, the quote was mistakenly attributed to another USA Today panelist, Paula Rawson of Greenwood, Ind., who in fact said: "I don't care if Bush wants to give someone a friendly peck. Let's move on to the real issues.")

Today's Calendar

The president and first lady head to Little Rock today to participate in the dedication of the Clinton presidential library. Bush is to speak for about 10 minutes, mingle, eat lunch and get a tour.

The Bushes spend the night in Crawford before heading off to South America on Friday for the 12th Asia Pacific Economic Cooperation leaders meeting.

The Summit

Steve Holland writes for Reuters: "President Bush plans to urge allies at an Asia-Pacific summit in Chile this weekend to press North Korea to return to stalled talks over its nuclear weapons program, senior U.S. officials said on Wednesday. . . .

"He will also press Pacific rim leaders for agreement on security initiatives to combat terrorism and weapons of mass destruction at the APEC meeting, officials said.

Protest Watch

Héctor Tobar writes in the Los Angeles Times that the summit "will highlight the antipathy many Chileans feel toward Bush, a leader widely seen here as a symbol of America's unchecked dominion over world affairs.

"A number of anti-Bush and anti-globalization protests are planned. On Wednesday, President Ricardo Lagos' government took the unusual step of announcing that Bush would have diplomatic immunity during his visit. The declaration was made after activists filed a court complaint against Bush, claiming he and other U.S. officials were guilty of war crimes in Iraq."

Rice Not Going

Reuters reports: "Secretary of State-designate Condoleezza Rice will have a minor surgical procedure on Friday while President Bush is away on a trip to Chile, her spokesman said. . . .

"Rice is having a uterine fibroid embolization, a minimally invasive procedure aimed at treating fibroids by blocking blood flow to them. Fibroids are non-cancerous tumors in the uterine wall.

"Bush will be accompanied to an Asia-Pacific summit in Santiago, Chile, by Deputy National Security Adviser Stephen Hadley, giving Hadley a lead diplomatic role as he prepares to succeed Rice as national security adviser."

On Background

At a background briefing yesterday on Bush's trip to Chile, the press corps tried to push back a little on the ground rules. Here's the text.

National Security Council spokesman Sean McCormak kicked things off:

"Normally, we would have Dr. Rice doing these briefings, as is practice, but because of yesterday's announcement we have three background briefers for you, three senior administration officials who are going to be talking about the President's visit down to Santiago, where he's going to have the APEC meeting, he's going to have a bilateral meeting with the Chilean President, then some other bilateral meetings while he's down there. He's going to travel on to Colombia, and these guys will fill you in on what's going to be going on, so I'll turn it over to them now.

"Q Can we have them on the record, as we would have Dr. Rice?

"MR. McCORMACK: I think for this briefing, Terry, if you'd bear with, we're going to do this one on background and we'll take a look at future briefings on the record.

"Q Can we vote on that? (Laughter.)

"MR. McCORMACK: Yes, and it's a democracy of one, and I vote that it's on background. (Laughter.)

"Q They did vote on it, November 2nd -- they won. (Laughter.)"

Froomkin Watch

Today's column is my last until Monday, Nov. 29. Have a great Thanksgiving.

© 2004