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Last Updated: Tuesday, 13 May, 2003, 03:01 GMT 04:01 UK
Bush's tax cut politics
President Bush speaking on tax cuts in New Mexico, May 12. 2003
By Steve Schifferes
BBC News Online, Washington

Why is President George W Bush is putting so much of his political energy into pushing his tax cut plan despite a growing budget deficit?

For the last few weeks, the president has been criss-crossing the country appealing for support for his tax cut package that is now making its way through the Congress.

In the past few weeks, Mr Bush has visited military plants in California, Ohio, and Missouri, and met with small business leaders in Arkansas, Nebraska, and Indiana, arguing for a big tax cut to help jump-start the economy.

President Bush
President Bush: Appealing to his small business base
Despite his efforts, both the House and Senate are writing bills which reduce the dividend tax cut, the centrepiece of Mr Bush's plan.

But for the president and his political team, the issue is not so much the size of the tax cut package as the way it will play in the next election.

Wooing the 'investor class'

Many economists, and many Democrats, have questioned the wisdom of the dividend tax cuts, which will not take effect soon enough to influence the economy this side of an election, and will disproportionately benefit the rich.

But for Mr Bush, reviving the stock market is crucial in bolstering his appeal to the "investor class" - those Americans (now more than half the population) who own stocks.

According to his political advisor Karl Rove, people who own stock are increasingly likely to vote Republican, with an extra margin of 10% across all social and ethnic groups.

The confidence of US investors was badly damaged by the dramatic drop in stock market prices that began in April 2000.

The hope is that the dividend tax cut, by making stocks more valuable, could help boost the value of those investments - and increase investor loyalty to the Republican Party.

Targeting wavering Senators

But to get his tax cut through Congress with a wafer-thin majority, Mr Bush also has to win over a few moderate Democrats, in order to neutralise the moderate Republicans like Maine's Olympia Snowe who are worried about the size of the deficit.

It is no accident that one of the first of Mr Bush's trips after the war in Iraq was ending took him to Ohio, the home of another moderate Republican, George Voinovich.

Mr Bush's trip to Arkansas last week seemed to have influenced first-term Senator Blanche Lincoln, a moderate Democrat whose vote was crucial in sending the tax cut proposal to the Senate floor.

This week's travel's take him to the home of two other moderate Democrats, Ben Nelson of Nebraska and Evan Bayh of Indiana, both of whom face election fights in 2004.

Mr Bush is betting that Democrats up for re-election will be reluctant to take on the small business lobby he has been mobilising.

They point to the lessons of neighbouring Missouri, where the one-term Senator Jean Carnahan, lost a close race in 2002 after massive negative campaigning against her by small business groups.

Discomforting the Democrats

If Mr Bush is hoping to make life difficult for Democratic Senators, he is causing even more difficulty for those nine Democrats who are seeking to run against him for President.

By accelerating his earlier tax cuts, the president is forcing his rivals to say they will raise taxes in order to realise their more ambitious social objectives - something that only Representative Dick Gephardt, who called for repeal of the 2001 tax package to fund universal health care, has done so far.

And Mr Bush, in an attempt to avoid the mistakes made by his father, is positioning himself as a "compassionate conservative" on the economy - but not someone who raises taxes.

If his tax package is cut back, he can blame the Democrats for not doing enough to help the unemployed and revive the economy.

And if the economy does revive, he can claim credit for the tax cut package whatever its size.

With the Democrats too divided to come up with a clear alternative, polls show that the president's "jobs and growth plan" is gaining in popularity.

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03 Feb 03  |  Americas

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