Killed on Taxes: The administration is blundering.(Statistical Data Included)

The White House is gamely trying to put a positive spin on the Senate rejection of President Bush's $1.6 trillion tax cut-Hey, at least we got the Democrats to agree to $1.2 trillion!-but in reality, this was a major blow to Bush's program: The tax plan is shrinking at the very time when it could-and should-be growing. Worse, the administration has become vulnerable to a clever Democratic counterattack: Senate minority leader Tom Daschle and House minority leader Dick Gephardt now favor giving every worker a $300 tax-rebate check this year. The catch is they want to all but scuttle the longer-term income-tax rate cuts that are central to the Bush plan. "Our tax plan provides more tax relief, now when it's needed most," Daschle has slyly declared.

Daschle is at least partly right. The Democratic plan really does provide more tax relief now, when tax cuts are needed most. Never mind that the Democratic plan is economically silly: If governments could create prosperity by giving everybody $300, why don't Bangladesh and Nigeria try it? But the plan is politically attractive. The typical American will look at the two competing plans and think: Hmm, a $300 check right now or the mere promise of bigger tax cuts, which might arrive sometime around 2005. In those circumstances, it makes sense to just grab the check.

So the tax-cut effort is in serious trouble. The administration finds itself in this predicament largely as a result of its own freshman-year miscues. The first occurred when it became clear that the economy was in worse shape than most economists had originally believed. The Fed recently calculated that Americans lost a staggering $2.6 trillion of wealth in the last quarter of 2000. Because of those losses, consumers have slowed their purchases, blue-chip companies have laid off thousands of workers, and many high-tech businesses have gone bankrupt.

Practically every prominent supply-sider has been urging Bush to endorse deeper and faster tax-rate cuts to boost the ailing stock market. The Bush team largely ignored the advice, insisting that they would not countenance revisions to their tax plan-even though it had been drafted nearly 14 months earlier, in the midst of a roaring economy with GNP surging at a 5 percent rate. The result: Bush to this day has never submitted an anti-recession tax-cut plan, thus leaving the field wide open for the Democrats.

In February, Treasury secretary Paul O'Neill made a huge blunder when he virtually pledged to resign if the tax cut exceeded the Bush target of $1.6 trillion. This set a ceiling, rather than a floor, on the size of the tax cut. Worse, it undercut the promising work of Bush's conservative allies. Republican congressman Pat Toomey of Pennsylvania, for example, was fashioning a proposal that would have expanded on the Bush plan with a capital-gains tax cut, and deeper, immediate income- tax rate cuts.

The Toomey plan would have provided an immediate supply-side stimulus, and should have been warmly embraced by the Bush team. (Note to the White House: It's not too late!) The Toomey plan repaired the fundamental economic and political defect of Bush's original plan, the fact that it's far too back-loaded either to help the economy now or to help Republicans politically in 2002 or 2004. More than two-thirds of the tax cut arrives after 2004, by which time Hillary could be running the White House and thus be the one reaping the rewards of the supply- side policy.

What on earth are the Republicans waiting for? The solution to their conundrum seems obvious: more supply-side tax cuts, faster. How can they let Tom Daschle get to the right of them on taxes? Here's another example: On the death tax, New York Democratic representative Charles Rangel proposed to cut the rate by 20 percent immediately. The Republican plan, meanwhile, calls for eliminating the tax over eleven years, and doesn't cut the rate by 20 percent until 2008 or later. Which plan is better? I'm not entirely sure. But why don't Republicans cut the rate 20 percent now (a la Rangel) and then phase out the rest over ten years?