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Evans, Novak, Hunt & Shields

Karl Rove Discusses Tax Cuts and Other Bush Administration Policies

Aired March 3, 2001 - 5:30 p.m. ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

ROBERT NOVAK, CO-HOST: I'm Robert Novak. Al Hunt and I will question President Bush's chief political strategist. He is Karl Rove, senior adviser to the president.

AL HUNT, CO-HOST: President Bush delivered his first speech to a joint session of Congress, stressing his chief legislative priority:

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Tax relief is right, and tax relief is urgent. The long economic expansion that began almost 10 years ago is faltering.

(END VIDEO CLIP)

HUNT: Two days after the president spoke, the House Ways and Means Committee approved the Bush tax cuts in a straight party-line vote over Democratic protest.

(BEGIN VIDEO CLIP)

SEN. TOM DASCHLE (D), SOUTH DAKOTA: This is the most irresponsible legislative act that I have ever seen.

(END VIDEO CLIP)

HUNT: Karl Rove, an Austin-based political consultant was the leading strategist of George W. Bush's campaigns for governor of Texas and president. As Mr. Bush's top political adviser, he's been assigned the White House office once occupied by Hillary Rodham Clinton.

(END VIDEOTAPE)

HUNT: Karl Rove, thank you for joining us.

Mr. Rove and my co-host Robert Novak are attending a conference in Palm Beach, Florida.

Mr. Rove, obviously the White House is delighted with the House Ways and Means Committee approving the tax cut bill. Yet, as we noted in the introduction, it was done in a straight party-line vote. The vast majority of House Democrats and Senate Democrats say they are opposed to the measure.

Doesn't that suggest that President Bush really hasn't ended the great partisan divide in Washington?

KARL ROVE, SENIOR ADVISER TO PRESIDENT GEORGE W. BUSH: Well, we've got a long way to go before the final bill is passed, and we're confident, on final passage, there will be a good many Democrats helping to pass this tax cut.

HUNT: Assuming the House passes it next week, which practically everyone does, and it goes to the Senate -- you are the leading White House strategist -- is it your assumption that this tax cut bill can pass the Senate as a stand-alone measure perhaps garnering 60 or more votes? Or is going to have to become part of the budget package, so- called reconciliation, which means it may not pass until May?

ROVE: Well, the Senate operates on a different calendar than the House, and we don't anticipate that the tax cut will be taken up and considered until much later in the spring. And exactly what forms it takes, whether it's a stand-alone bill or passes as part of the budget process, that's up to the Senate to decide. But we're confident that it will receive the necessary votes to pass the Senate.

NOVAK: Let me ask you this: Is the primary rationale for the Bush tax cut an anti-recessionary measure or is it because Americans are over-taxed, or is it to drain the coffers so the politicians can't spend it?

ROVE: Well, there are several reasons for the tax cut. First of all, it's right, because it's reform of the tax code. It makes the tax code simpler and fairer, particularly for those who face high marginal rates. Those on the bottom end of the scale, a single working mom making $25,000 a year waiting tables faces a higher effective marginal rate on each additional dollar she works for than somebody who's making $225,000 a year. That waitress, if she works overtime, pays 50 cents of every dollar she earns in taxes. So the system is not fair in its current form, and this helps begin move it towards a more fair, simpler system.

Second of all, it has consequences for the long-term productivity of the economy. It helps long-term growth.

But it also is important to give people some of their money back right now. We have a record number of Americans -- 61 million, I believe -- who have credit card debt of $10,000 or more. We have rising energy prices that are taking a big bite out of family budgets, and the economy is slowing. And it slowed in the last quarter of last year pretty rapidly, and we need to do something to give it a jumpstart.

NOVAK: Karl Rove, on Friday, the day after the tax cut was passed by the Ways and Means Committee, the Wall Street Journal, which for more than 20 years has been a thundering voice for tax reduction, was not very pleased in its lead editorial.

Let's put part of that editorial up on the screen. The Wall Street Journal said, quote, "The immediate lowering of the lowest tax bracket by 3 percentage points is ridiculous timid. Indeed, under this design, the total tax cut in the bill's first year would be $5.6 billion. This effort is turning into both bad economics and bad politics," end quote.

Were you shaken by that?

ROVE: No. We think Chairman Thomas of the House Ways and Means Committee did a good job. This bill has got a long way to go. We're confident that, in its final form, the Wall Street Journal and those that are concerned about economic growth and lower tax rates and a fairer, simpler reformed tax system will be happy with the final product.

HUNT: Mr. Rove, to some of us who have been around a while, this brings back memories of Jimmy Carter's $25 rebate. Do you remember that? He was going to give everybody in America a little rebate? Is this the tax policy -- listening to you, it sounded like it was a little bit -- that you give ordinary people enough money and they will go out and buy a toaster? And this...

(CROSSTALK)

ROVE: $1,600 will buy an awful lot of toasters, and that's what the average American will get in the way of a tax cut from the president.

HUNT: But that is change in economics; you put more money in their pockets.

ROVE: Well, there are both demand- and supply-side effects of a tax cut.

And while the supply side has long-term implications, the demand side has short-term implications. People need more money to deal with the rising costs that they are facing in energy and to reduce their consumer debt.

NOVAK: Mr. Rove, there is a lot of agitation, a lot of support on a bipartisan basis for a so-called trigger on the tax cut. That is, as the surplus diminishes, it triggers in less of a tax cut, which is in effect a tax increase. In other words, the worse the economy gets, the more you tax the people. That's not exactly modern economics.

Is that veto bait, if the president is handed a bill on his desk with that kind of a trigger on it?

ROVE: Well, he's made it very clear that there are two reasons why you would have a trigger: One is if the economy slows down, and there's less revenue. Or if Congress overspends. And neither one is a good rationale for a tax increase.

NOVAK: So he might veto it?

ROVE: So he's made very clear his strong opposition to it, and I'm not really certain how much bipartisan support there is for that kind of trigger anymore.

HUNT: Mr. Rove, Treasury Secretary O'Neill got a bit agitated a few days ago when members of the press kept asking him about reports that, under your tax cut, the wealthiest 1 percent of taxpayers, those making over $300,000, would get 43 percent of the cut. The administration says that's wrong, and I know you talked earlier about what the $25,000-a-year waitress would get.

But if that figure is wrong, could you tell us what is the correct figure? What percentage of your tax cuts would go to the wealthiest 1 percent of taxpayers?

ROVE: Well, I don't have that figure. But let me explain how you get to that number that you just gave, the wealthiest 1 percent, those making over $300,000.

Let's say I'm a farmer in Iowa, and I make a reasonable living. I make $60,000 or $70,000 a year to feed my family. But I have, let's say, 2,000 acres of land. When I die, that land pops me into the top 1 percent. Now, I don't get to enjoy the benefits of being in the top 1 percent because I'm dead, but my heirs have to pay an estate tax on it.

That's how that phony calculation comes about, by considering anybody who maybe cash-poor and land-rich like a farmer or a rancher or a small-business person, who has a small business that's worth something, far more than they derive in income obviously, at the top 1 percent.

HUNT: Just for the record, you think the top 1 percent is primarily farmers who are land-rich but income-poor?

ROVE: No, I'm saying that's how they get at that goofy number, is by including people like that who, for a brief period of time -- the moment of their death -- are in the top 1 percent.

Now, the interesting thing about the president's proposal is that those at the top end will end up paying a larger share of the tax burden that's to remain. I think it steps up for the top, I think, 10 percent. Ten percent of taxpayers go from 62 to 64 percent of the tax burden.

HUNT: But you can't tell us what the 1 percent gets at this time?

ROVE: I can't remember what the number is. I'd be happy to get back to you in it.

HUNT: That would be great.

Bob Novak?

NOVAK: Karl Rove, there are some lobbyists in town who have been around a long time, who feel that you should have waited a little bit longer to act on the tax cut in the Ways and Means Committee, give the president a chance to go around the country and build up support for it. And I am told that there are people in the White House who agree that Bill Thomas pulled the trigger a little too quickly in the Ways and Means Committee. Is that true?

ROVE: I don't think so at all. Chairman Thomas has been in good communication with the White House. We've been working with him on the timing issue. There is plenty of time to build up support around the country, and the president will do so in a pretty aggressive fashion, moving around the country to encourage support in Congress and encourage the American people to let their members of Congress know.

NOVAK: Mr. Rove, you said this is not the final version of the bill that came out of the Ways and Means Committee. Dick Armey, the House majority leader, had a column the other day where he talked about cuts in the capital gains tax, he talked about improvements in the 401(k)s and the IRAs. Is that a possibility in this year's tax bill?

ROVE: Well, I doubt so. I mean, the president laid out his tax cut proposal during the campaign and has asked the Congress to pass that, which is reduction in tax rates for everybody who pays taxes, reducing the number of tax rates from five to four, marriage tax relief, doubling the child tax credit, making permanent the research and development and then abolishing the death tax. And that's where our principal focus is going to be.

NOVAK: OK, we're going to have to take a break. And when we come back, we'll find out if Karl Rove has it in for John McCain.

(COMMERCIAL BREAK)

HUNT: Mr. Rove, I wrote a column several weeks ago about the McCain-Bush Cold War, in which Senator McCain and several of his top associates expressed dismay at White House efforts, which they charge were led by you, to continue the acrimony of last year's primaries.

I know you disagree with that column, but let me just ask you this: Have you spoken to Senator McCain since he made those remarks or since January 20?

ROVE: No, I haven't. I normally don't talk to many members of Congress. That's above my pay grade.

HUNT: Mr. Rove, there was a piece the other day in the New York Times, I believe, that said that members of the Senate were lined up to talk to you at the White House the other day, and I've spoken to a number of Republicans, all of whom have said they've spoken to you. isn't it fair to say you have spoken to most Senate Republicans over the last five or six weeks? And if that's the case, why not Mr. McCain?

ROVE: Well, I don't think that's accurate, that I've talked to most members of Senate. That comment was given to the New York Times by a good friend of mine, Bill Frist of Tennessee, and I don't remember it happening exactly that way. But, you know, look, Senator McCain is a good friend of the president's. The president has great respect for him. he is a person of great conviction and principle. He is a person who was a worthy competitor last year, and the president has great respect for him.

And your column, with all due respect, I thought was a little off base. I mean, we've got more important things to do at the White House than to continue battles that tie back to last year's primary.

HUNT: I understand that. I'm just asking if it's his view that you are a part of this effort to create acrimony between Bush and McCain. As a matter of fact, the McCain people say you've tried to dissuade politicians from using McCain consultants. You obviously think that's wrong. Why not just tell Mr. McCain that's wrong?

ROVE: Well, I've signaled both on this program and previous programs that we all have a great deal of respect for Senator McCain and view him as a friend, not an adversary. And if it would do good to go up and talk to the senator personally about it, I'd be happy to. But I would be surprised if these opinions were coming from Senator McCain, who has more important fish to fry than me.

NOVAK: Mr. Rove, I see you have a piece of paper in your hand. Is that the answer to Mr. Hunt's question about the top 1 percent?

ROVE: Yes. Mr. Hunt, I have reached into my briefcase and got the answer you wanted. The top 1 percent now pay 31.5 percent of all the taxes. With the Bush tax cut, they would get 22.3 percent of the benefit. So after it's all over, they would pay a higher share of the remaining tax burden -- 32.6 percent.

On the other hand, on the bottom end of the scale, 6 million households would be taken off the tax rolls altogether.

HUNT: Does that count the estate tax, Mr. Rove?

ROVE: No, it doesn't, because, again, the Joint Committee on Taxation and the Treasury say you cannot impute or attribute the estate tax on the distribution table, because, again, you have people who may have an asset but have very little in the way of income compared to their assets.

HUNT: Mr. Rove, Christine Whitman, the new environmental protection administrator, this past week, said that President Bush favors the control of carbon dioxide emissions. Now, conservatives and people in the oil and gas industry feel that when you start talking about that, you're talking about global warming extremism, eco extremism. Is Governor Whitman correct? Does George Bush actually favor control of carbon dioxide emissions?

ROVE: Well, control implies that you call it a pollutant. And if we have control of it, we'll have to get a federal license for you and I to breathe, because we breathe out carbon dioxide.

HUNT: No, that's what I meant. ROVE: But as governor of Texas, he was concerned about carbon dioxide emissions from the so-called grandfathered utility plants, old utility plants that used out-dated technology, and worked with industry to basically reduce carbon dioxide and other emissions, mercury and some others.

He does believe that, where possible and where practical, industry ought to reduce carbon dioxide emissions. We don't know its real effect. There's a real debate in the academic community about it. But if something can be prudently and economically done to reduce carbon dioxide emissions, he'd like to see it done.

NOVAK: Mr. Rove, there has been a lot of speculation, some of it in print, that since you have been very good to the conservatives, with John Ashcroft as attorney general and this big tax cut, that you can whack them in the head on the environment and global warming. Is that a fair assessment?

ROVE: I saw that quote from an anonymous person, and we're trying to find him, because that's not the president's attitude at all. The president has a consistent philosophy that undergirds his approach to governing. And he believes that we ought to conserve our land and our water and clean it up, and we ought to do so by using market-oriented incentive programs, which he did as governor of Texas and which he will do as president.

HUNT: Mr. Rove, I know that your policy is not to comment on the controversy over the Clinton pardons, but I think almost everyone agrees that Marc Rich, who was pardoned, is a really bad man, a fugitive who renounced his country. Indeed, Republicans on that House investigating committee have referred to him as a traitor.

If that's the case, does it raise questions about the vice president's chief of staff, Mr. Libby, who, for 10 years in between government stints, represented Mr. Rich, got $2 million from this, quote, "traitor," end quote, and called him two days after the pardon to congratulate him? Does that at least raise questions about the ethical standards of a high-ranking Bush administration official?

ROVE: Absolutely not. He represented him in civil proceedings. Lewis Libby is a man of great integrity and an enormously talented and gifted individual. He represented him in legal proceedings. And I think that people who would suggest along the lines that you just did are making a big mistake, and that's just really inappropriate.

HUNT: Quickly, Barney Frank, the Democratic congressman, says that the pardon power should be suspended during presidential elections for the 2 1/2 months after presidential elections, from November to January 20. Is that something you all would consider?

ROVE: Well, that would require a constitutional amendment in order to limit the pardon power, because it's unconditional in the Constitution. I will say this: President Bush believes that the pardon power ought to be rarely used and not -- as governor, he used his pardon power in a very light way. NOVAK: We're going to take a break quickly, but I want to ask a quick question. Attorney General Ashcroft, meeting with the Congressional Black Caucus, said that he would go along with the reappointment of Supreme Court Judge Ronnie White of Missouri to a federal judgeship, which he had opposed. Is the president going to name Ronnie White to that job?

ROVE: This is the first I've heard of it, and I'm not certain. And I think Judge White of Missouri said he didn't want to be a federal judge. he's not under consideration that I'm aware of.

NOVAK: So we shouldn't count on that very much?

ROVE: No.

NOVAK: OK. We're going to take another break, and when we come back, we'll have the big question for Karl Rove.

(COMMERCIAL BREAK)

NOVAK: The big question for Karl Rove:

Mr. Rove, one of President Bush's main goals has been to try to achieve some of the bipartisanship in Washington that he had in Austin. But this past week, the House Ways and Means Committee Democrats all voted against his tax cut, the Democratic-induced gridlock in the Senate. Would you say that the president has failed to get bipartisanship from the Democrats?

ROVE: No, not at all. This situation in Washington took a long time to create, and it will take some time to unravel. What the president is going to continue to do is to act in the same spirit that he's acted in the last five weeks. And there will be some positive reaction on the other side.

NOVAK: You don't blame the Democrats?

ROVE: No, look, I do think this: If you look back to the last five weeks, the tone is changing. The rhetoric is less heated, the recriminations are less frequent, and there's a new spirit emerging in Washington. It will take a long time to fully emerge, but we think things can be better and done in a more positive and optimistic way.

HUNT: Mr. Rove, spirit is nice, but could you give us a concession that either Democrats have made to you or you've made to the Democrats on substance?

ROVE: Well, the president outlined it in his speech to the Congress on Tuesday. He said several time about how he had listened to members of Congress who had come to visit with him and how he had reacted.

For example, making sure that his budget pays down the maximum amount of debt that can be redeemed in the next 10 years, which is a point that he heard from Republicans and Democrats alike, that they wanted that reassurance, a budget that paid down all the debt that could be redeemed without paying a bonus or a premium to the bond holders.

HUNT: OK, Karl Rove, thank you very much for being with us.

And my partner Robert Novak and I will be back with a comment or two in just a moment.

(COMMERCIAL BREAK)

HUNT: Robert Novak, it's appropriate that Karl Rove is sitting in Hillary Rodham Clinton's office, because, whatever the title, he's one of the two or three most important strategists in this Bush administration. Whatever talk you hear, he has the president's ear.

NOVAK: Al, Mr. Rove certainly wasn't going to criticize the Ways and Means tax cut as too early or too shallow. He's not going to get on the wrong side of Chairman Thomas. But he says this isn't the final version of the bill.

HUNT: Bob, I think he wasn't quite level on John McCain, though. John McCain was quoted by named as saying he had complained about Karl Rove in the White House, and I think the fact that he hasn't spoken to John McCain in six weeks is really extraordinary.

NOVAK: I think he also made clear to us, though, that Ronnie White is not going to be a federal judge. He'd like to get some pleasing actions for the Congressional Black Caucus, but he won't go that far.

I'm Robert Novak.

HUNT: And I'm Al Hunt.

Coming up in one half-hour on "RELIABLE SOURCES," a look at the media coverage of President Bush's address to Congress, plus the Clinton pardon investigations.

And at noon Eastern on "LATE EDITION" with Wolf Blitzer, Vice President Dick Cheney talks about the White House, budget, taxes and more.

And at 7:00 p.m. Eastern, the "CAPITAL GANG" debates the battle over tax cuts with an interview with House Ways and Means Chairman Bill Thomas.

NOVAK: That's all for now. Thanks for watching.

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