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Wednesday January 30 5:31 PM ET

Permanent Tax Cut Seen Costing $627B

By ALAN FRAM, Associated Press Writer

WASHINGTON (AP) - President Bush's call to make last year's tax cut permanent would cost $627 billion over the next decade, congressional budget analysts estimate, further draining projected surpluses.

The figures, obtained by The Associated Press, mean that the $2.26 trillion surplus that the Congressional Budget Office has projected for the decade beginning in 2003 would shrink by 28 percent.

That would still leave nearly $1.64 trillion in projected federal surpluses for that period. But much of that would be needed to pay for increases both parties want for defense, homeland security, health and other programs.

Bush called for the extension of the tax cut in his State of the Union address to Congress Tuesday evening, prompting thunderous cheers from Republicans and mostly silence from Democrats.

``For the sake of long-term growth and to help Americans plan for the future, let's make these tax cuts permanent,'' Bush said.

The cost estimates come from projections that the CBO has provided to others on Capitol Hill. CBO is Congress' nonpartisan fiscal analysis group.

For the decade beginning in 2002, the CBO estimated it would cost $333 billion to make the tax cut permanent. That would reduce the $1.6 trillion surplus CBO currently projects for that period by 21 percent to nearly $1.27 trillion.

Just last week, CBO lowered its projected surplus for that decade from a $5.6 trillion surplus it estimated a year ago.

The $1.35 trillion, 10-year tax cut that Bush pushed through Congress last spring was his paramount priority at the time. The package, which reduces income tax rates, phases out the inheritance tax and makes other changes, was a major victory for the new president and congressional Republicans and came over the opposition of most Democrats.

It is scheduled to expire after 2010, a device its authors used to control its price tag and win support from moderate lawmakers. Its supporters have always assumed it would be made permanent, since tax rates would otherwise automatically snap back up in 2011 - a prospect many lawmakers hope to avoid.

Senate Budget Committee Chairman Kent Conrad, D-N.D., said he opposes making the tax cut permanent. He said that when added to his own staff's estimates of the costs of other proposals Bush made in his speech - such as for defense boosts and providing prescription drug coverage - projected surpluses would be virtually gobbled up.

``It's going to leave our country in a deep hole,'' Conrad said of Bush's plan. ``Maybe his thought is he gets out of town before the roof caves in,'' he said, referring to the end of Bush's term as president.

House Republican leaders are expected to discuss when to schedule a vote on making the tax cut permanent at a retreat for GOP lawmakers in West Virginia this week.

``Fixing the economy will certainly be a top priority early this year, and making the tax cut permanent will fit nicely into that,'' said Greg Crist, spokesman for House Majority Leader Dick Armey, R-Texas.

Ranit Schmelzer, spokeswoman for Senate Majority Leader Tom Daschle, D-S.D., said Senate Democrats ``fully expect there will be a vote on making the tax cut permanent.'' Republican senators have discussed forcing such a vote, which could be a tough one for Democrats facing close re-election races this November.

The fiscal 2003 budget Bush introduces next week will assume that the tax cut is made permanent, White House budget chief Mitchell Daniels has said. The new fiscal year begins next Oct. 1.

The bulk of CBO's estimated costs of making the tax cut permanent come from its projection that the cut would cost the government $175 billion in 2011 and $294 billion in 2012. Under current law, the tax cut would have expired in 2010. A small portion of the costs would come from keeping a handful of tax cutting provisions permanent that are currently scheduled to end in 2004 and 2005. These include some tax breaks for education and for people and corporations that pay the alternative minimum tax.

From 2003 through 2012, making the tax cut permanent would cost the government $569 billion in lost revenue, CBO estimated. In addition, it would cost the government an added $58 billion in extra interest payments on the national debt, according to the estimate.