White House Aides: Bush Tax Plan Now Primarily A Campaign Tactic; Calderon’s 956 Prospects Fade... Mercado: We Are A Country At UN Summit; UN Summit: Local Governments Are Also Invited

August 23, 2002
Copyright © 2002 THE PUERTO RICO HERALD. All Rights Reserved.


Bush Administration officials met Wednesday to discuss the tax proposals that the President will ask Congress next month to pass this year. This bill could possibly be the vehicle to which Governor Sila Calderon would attach a controversial tax measure.

The package is ostensibly intended to stimulate investments through the fallen stock markets. But Bush’s chief economic adviser, Lawrence Lindsey, has reportedly told economic activists that the administration does not really believe it will pass before the November elections.

Instead, the President would ask Congress to pass the tax cut package before the elections to help Republican congressional candidates, participants in another meeting with Lindsey said. The strategy will reportedly be to propose a package that, at least in part, can make it through the Republican-controlled House of Representatives. The package would not be expected to pass the Senate, which has a Democratic majority.

This would enable Republican candidates to say that Republicans are fighting for solutions to the country’s economic problems and to salve the pain of stock market losses affecting many Americans, while Democrats are being the obstructionists against passing such legislation.

The fall of the stock market and other economic problems — and Bush’s lackluster response to date -- have buoyed Democratic hopes of winning control of the House this November and dashed Republican hopes of winning the Senate.

Among the tax measures under consideration by the Bush Administration are raising the amount of stock market losses that can be deducted in calculating income taxes, cutting the taxes on capital gains and stock dividends, increasing the tax-deductible limit on contributions to retirement accounts, and raising the age at which funds must be withdrawn from the accounts.

Theoretically, the bill is the ‘vehicle’ that has been needed for Calderon’s proposal to permanently exempt 90-100% of profits that Puerto Rico manufacturing subsidiaries of companies based in the States transfer to their parent companies. Calderon ("commonwealth party/no national party) has said that the proposal has only lacked an underlying tax bill to pass it into law. And a couple of top congressional leaders have said that they would try to add the proposal to any tax bill.

The proposal is handicapped, however, by lack of support on tax policy grounds from the chairmen of the House and Senate tax committees and the Treasury Department. It has also been handicapped by its multibillion dollar cost.

Whether the proposal is added to the tax package that Bush is to propose will be the true test of whether it has only lacked a ‘vehicle’ to pass it as Calderon has said or its real problems are its tax policy problems and cost.


A dramatic drop in tax revenues will mean budget deficits through fiscal year 2005 and much smaller surpluses after that, according to federal budget officials.

The news created a major problem for the tax package that President Bush is preparing to propose. It may also create greater problems for Governor Calderon’s requested tax exemption for Puerto Rico manufacturers headquartered in the States and other Puerto Rico federal program proposals.

Because of the bad budget news, Senate Budget Committee Chairman Kent Conrad (D-ND) said Tuesday that Bush’s expected tax cut package would require tax increases in other areas or spending cuts. And House Speaker Dennis Hastert (R-IL) has reportedly advised the White House that the tax cut package will have to be relatively small. The developments have raised questions within the Bush Administration about how extensive the package should be.

The Congressional Budget Office (CBO) Tuesday predicted a $145 billion deficit in the fiscal year that begins October 1, and a surplus of just $336 billion through 2011. But the $336 billion compares with a CBO estimate of a $5.6 trillion surplus through 2011 just last year.

Last year’s CBO estimate enabled President Bush to say that the government could afford the 10-year, $1.35 trillion tax cut that he won passage of last year and still provide a prescription drug benefit under Medicaid for the elderly as well as reduce the federal government’s outstanding debt.

The CBO projected that the surplus over fiscal years 2003 through 2012 would be $1 trillion, but that number compares with an estimate of $2.5 trillion by the President’s Office of Management and Budget (OMB) just last month. The $2.5 trillion would be enough, OMB said then, for making the 10-year tax cut permanent, additional health benefits, and increased defense spending.

OMB officials have accepted the new CBO projections. While they still call for making last year’s 10-year tax permanent, they have not identified ways to pay for the Medicare prescription drug benefit which is expected to cost $300 billion over 10 years, the military attack to topple Iraq President Saddam Hussein that Bush says he will launch, and other increases in military and defense spending including programs to protect the U.S. against terrorist attacks.

Democrats pounced on the CBO estimates to criticize Bush. The White House and some congressional Republicans, meanwhile, said that the news means that Congress will have to limit spending on programs.

Although the federal government has generally operated with a deficit in recent years, surpluses that were created during the Clinton Administration have made the renewed deficit a political problem for Bush and other Republicans.


Secretary of State Ferdinand Mercado is leading a Puerto Rico delegation to a United Nations (UN) Summit on Sustainable Development in Johannesburg, South Africa.

On leaving, Mercado, the chief architect of Governor Calderon’s efforts to increase participation of the Commonwealth in international organizations, told Puerto Ricans that the trip would "strengthen the international personality of the Commonwealth. We are making history with our participation and linkage with the UN. In South Africa, Puerto Rico will participate like any country."

As of press time, however, Puerto Rico was not listed as a nation in any of the Summit’s documents. Further, the Summit office said that local as well as national governments were being represented. In addition, there is participation by businesses and industry groups, labor unions, and environmental, social, scientific and technical organizations.

Joining Mercado and other Puerto Rico State Department officials at the summit are Calderon’s secretary of natural resources and heads of the Environmental Quality Board and Solid Waste Authority and their aides.


Three Members of the House Transportation and Infrastructure Committee visited Puerto Rico this week to inspect projects including the Martin Pena Canal and the Urban Train that will provide passenger services through the cities of San Juan, Bayamon, and Guaynabo.

The delegation is headed by Water Resources and Environment Subcommittee Chair John Duncan Jr (R-TN). Duncan, who succeeded his father in the House, is also a senior member of the Resources Committee, which has basic jurisdiction over Puerto Rico,

Also on the delegation are Economic Development, Public Buildings, and Emergency Management Ranking Democrat Jerry Costello (D-IL) and Representative Henry Brown (R-SC).

The delegation was escorted on its trip by Puerto Rico Resident Commissioner Anibal Acevedo Vila ("commonwealth party"/D) and Governor Calderon.

The "Washington Update" appears bi-weekly.

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