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Why The GOP Can't Lock In Tax Relief

Middle-class tax breaks in an election year: Now that's a tune both parties can sing, even in the Red-Blue Nation. The House has been crooning through a monthlong concert of tax votes orchestrated by Majority Leader Tom DeLay (R-Tex.). A bipartisan majority endorsed permanent relief from the marriage penalty, locked in the 10% tax bracket, and not only continued the child credit but expanded it to include the upper-upper middle class. Lawmakers even threw in another year of protection from the dreaded alternative minimum tax (AMT).

But listen closer, and discordant notes can be heard. House GOP leaders were disappointed that Democrats went along with the tax votes, robbing Republicans of a dream campaign issue. And they face formidable opposition in the Senate from centrists in their own party who are appalled at the $530 billion, 10-year price tag. Says Heritage Foundation Vice-President Michael Franc: "Just don't expect the [tax breaks] to survive the Senate." The tax relief rush is likely to stall until just before the election -- and even then, Congress will extend the cuts for at most one year.

GOP leaders hoped to use these middle-class goodies as bait in an election-year trap. The Republican plan: Sucker Democrats into voting against popular tax breaks set to expire in 2005, then use those votes to bludgeon them in the campaign. "This is election-year politicking," says Charles B. Rangel (D-N.Y.), top Democrat on the Ways & Means Committee.

But the GOP strategy failed. Thanks to years of redistricting, most Dems are in safe seats and have little to fear from GOP tax attacks. And the few of their colleagues in swing districts could happily go along with the cuts, secure in the knowledge that the most expensive items -- such as granting a $1,000-per-child tax credit to couples earning up to $250,000 -- are likely to die in the Senate. Indeed, some conservatives fear that Democrats in tight races can now campaign as tax-cutters. "I don't see how Republicans are going to use this as an election issue," says Chris Edwards, director of fiscal policy at the Cato Institute.

Insidious Levy

Moderate senate Republicans, such as John McCain (Ariz.) and Olympia J. Snowe (Me.) are also muddying the picture. They are resisting most tax breaks that aren't paid for with offsetting revenue increases or spending cuts. They say they'll go along with only $27 billion for one-year extensions of marriage-penalty relief, the 10% bracket, and the current child credit. Finance Committee Chairman Charles E. Grassley (R-Iowa) intends to roll those cuts into a single bill sometime this fall. But pre-election partisanship could sink even the one-year extensions.

The Senate's $27 billion cap won't fund relief from the AMT -- an insidious levy that hits 3 million mostly middle-class families. If Congress doesn't extend its patchwork AMT protection, that number will shoot up to 12.7 million in 2005, on its way to 30 million by the end of the decade. The stumbling block: An AMT fix would jack up the deficit by $18 billion in 2005 and $500 billion over 10 years.

None of this campaign season's maneuvers are likely to move any serious tax debate forward. That will have to wait until after Inauguration Day next January -- and a new initiative from either a reelected George W. Bush or new President John F. Kerry.

Comcast (CMCSK) has dropped its bid for Walt Disney (DIS), and the feds' case against Microsoft (MSFT) is all but over. But both issues live on in the fight over Deborah Majoras, the White House's pick to head the Federal Trade Commission. A former Justice Dept. antitrust lawyer, Majoras, 40, angered state officials who thought she was too soft in negotiating a settlement with Microsoft. At her June 2 hearing, however, lawmakers will focus on her role in a 2001 plan to hand FTC oversight of media mergers to the more partisan Justice.

The proposal was part of a reorganization promoted by departing FTC Chairman Tim Muris and Charles James, Majoras' former boss at Justice. Joe Sims, a partner at law firm Jones Day, where Majoras worked before and after her 2001-03 stint at Justice, helped shape the plan. It sank when Senator Fritz Hollings (D-S.C.), then Commerce Committee chairman, got wind of it.

Now Senator Ron Wyden (D-Ore.) has put a hold on Majoras' nomination. It doesn't help that the Dems' pick for another FTC seat, Jon Liebowitz, lobbies for the Motion Picture Association of America and may recuse himself from many media cases. "If Majoras and Liebowitz are on the commission, it will not survive as an effective watchdog on media mergers," says Jeff Chester of the Center for Digital Democracy. Majoras declined to comment.

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