Despite President Bush’s overwhelming approval ratings, it appears that Congress will dramatically reduce his $725 billion tax cut proposal in the weeks ahead.
In order to ensure enough votes in the Senate to pass the fiscal-2004 budget, Sen. Charles Grassley promised Sens. Olympia Snowe and George Voinovich his help in derailing any plan that calls for tax cuts of over $350 billion.
Of interest to the municipal bond market is that a likely casualty in the reduction of the Bush plan would be the repeal of the double taxation of stock dividends. Some market analysts had been concerned that tax-free dividends would weaken investor demand for tax-free bonds.
In order to keep the dividend tax-repeal in the plan, Congress will have to find spending cuts or additional revenue. Neither is considered likely.