In Congress, Paulson Faces Skeptics on Tax Policy

Henry Paulson, President Bush's nominee to be Treasury Secretary, has a challenge in getting the president's competitiveness initiative through Congress. Plans to renew research and development tax credits, as well as credits for math and science education, have run into roadblocks from Republican conservatives.

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MELISSA BLOCK, Host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Melissa Block.

ROBERT SIEGEL, Host:

And I'm Robert Siegel. Henry Paulson, the man President Bush chose as his nominee for treasury secretary, has received largely glowing reviews, and his confirmation seems all but certain. Paulson has said his priority will be to strengthen the competitiveness of the U.S. in a tough global economy. NPR's Adam Davidson has this story on the challenge ahead.

ADAM DAVIDSON: If Henry Paulson is confirmed as treasury secretary, he'll soon find that the single most important event every week happens at a lunch.

PHILLIP SWAGEL: The lunches is the White House mess, which is the - you know, sort of executive dining room, in a sense - in the basement of the West Wing.

DAVIDSON: Phillip Swagel was the chief of staff for the President's Council of Economic Advisors, so he went to the lunch every week. He says it's pretty informal, usually six to 10 people sit around a table.

SWAGEL: The vice president comes sometimes. You know, the treasury secretary, the secretary of commerce will come - sometimes the secretary of labor, and Karl Rove came, also.

DAVIDSON: Swagel says they talk about the key economic issues of the day, and begin to craft the administration's response. When someone has an idea - say for a new kind of tax cut or a special fund for vocational training - they can call upon the mass of government bureaucracy to research the issue and write a briefing for the next week's lunch. Swagel says that by now, most of the people at the table have been meeting weekly for a long time. Paulson will bring new energy, new ideas, and he comes from a different world: Wall Street.

SWAGEL: He's going to have different friends and he can say, look, here's what I hear. You know, people are worried about this and what are we doing about it? You know, so it's just, yeah. It's a natural sort of new blood, new idea.

DAVIDSON: Swagel says Paulson is famously not a shy man. He will certain hold his own, Swagel says, and be a strong advocate for his views. But others say that doesn't mean he'll actually change much. Ted Truman is a former senior treasury official, and now is at the Institute for International Economics.

TED TRUMAN: I'd be surprised if he's going to come in and do 180 degrees on anything, or even much more than 15 degrees on anything.

DAVIDSON: Paulson won't change things, in part, because he doesn't want to. He agrees with the president, and has for a long time on most major economic policy issues. Take one key issue: competitiveness. President Bush is currently asking Congress to pass a series of bills designed to improve the U.S. standing in the world economy. The big item here is a tax credit for money spent on research and development.

JOHN HASSEL: Right now, this country doesn't have an R&D credit. It's expired.

DAVIDSON: John Hassle, chief lobbyist for Hewlett Packard, says that Paulson has his work cut out for him. He has to convince Congress to pass this tax credit, or the U.S. risks losing its status as the world's primary source of new technology. Hassle points out that Hewlett Packard spends about $4 billion a year on research.

HASSEL: Well, the reality is we can spend that R&D budget anywhere in the world. And the countries in the rest of the world have governments that have better R&D tax credits.

DAVIDSON: The president and Paulson agree with this view, but some in Congress see it differently. They say the R&D credit is a windfall benefit to big companies that would spend money on research, anyway. Paulson's chief goal would be convincing those reluctant lawmakers to side with the president. The current treasury secretary, John Snow, was seen by some as an unrelentingly optimistic booster of the U.S. economy. Swagel, the former White House economic official, says Paulson is likely to be more forthright about the economy's good and bad aspects.

SWAGEL: You know, the president and Mr. Paulson will gain credibility by, you know, being honest about the good and the bad.

DAVIDSON: In short, Swagel says, Paulson is unlikely to transform the president's agenda. But coming from Wall Street with an air of authority, he may be a better advocate. Adam Davidson, NPR News.

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