Dow Falls 66 to 10880; Nasdaq Down 45 to 2562
STUART VARNEY, CNN ANCHOR: Tonight, let the tax battle begin. President Bush unveils his proposal, urging Congress to act quickly.</s>GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: A warning light is flashing on the dashboard of our economy.</s>WILLOW BAY, CNN ANCHOR: On Wall Street, the comeback kid of 2001 is losing its way: the Nasdaq ends in the red again.</s>VARNEY: House hearings kick off, investigating the uproar over one fugitive trader.</s>REP. HENRY WAXMAN (D), CALIFORNIA: One week, Marc Rich is on the Justice Department's list of the 10 most wanted, and the next week, he's given a presidential pardon.</s>BAY: And, the red-hot option for workaholics: taking the red- eye. You may save time but what do you lose?</s>ANNOUNCER: Live from coast to coast, this is</s>MONEYLINE. BAY: Welcome to MONEYLINE, I'm Willow Bay in Los Angeles.</s>VARNEY: Good evening, Willow, good evening everyone, I'm Stuart Varney in New York. Our top story tonight: the most dramatic tax cut proposal since the Reagan era. President Bush today delivered a $1.6 trillion tax- cutting plan to Congress. The president has portrayed the tax cut in "Goldilocks" terms: not too big, not too small, just right. But critics on both sides of the political divide disagree, guaranteeing that Mr. Bush will face his first big test trying to get this plan through Congress. Now, we have extensive coverage tonight, beginning with Fred Katayama, who followed the events in Washington today as they unfolded -- Fred.</s>FRED KATAYAMA, CNN CORRESPONDENT: Well Stuart, it was a day marked by ceremonial pomp and sales pitches, all focused on President Bush's tax cut plan. The proposal is now in the hands of Congress, where the debate will center on how big the cut should it be, and who should get more of the benefits.</s>KATAYAMA (voice-over): From President Bush's debut in the stately rose garden of the White House...</s>BUSH: Here's how my tax relief plan will work.</s>KATAYAMA: To the halls of Capitol Hill...</s>DENNIS HASTERT (R-IL), SPEAKER OF THE HOUSE: We've reached a great tax milestone.</s>KATAYAMA: And to the upper Senate park lawn nearby.</s>SEN. TOM DASCHLE (D) SOUTH DAKOTA: The Bottom 60 percent of all taxpayers get 29 percent. We don't think that distribution makes any sense at all. We think that's unfair.</s>KATAYAMA: Americans heard the sales pitch and the scorn on the biggest tax relief package in two decades. Republicans, as well as Democrats, agree Americans need tax relief, but sparred over the size and focus of President Bush's proposal. Mr. Bush capped a series of events marketing his $1.6 trillion, 10-year tax cut plan by officially signing off on the proposal. He favors making his plan retroactive to January one.</s>BUSH: A warning light is flashing on the dashboard of our economy, and we just can't drive on and hope for the best. We must act without delay.</s>KATAYAMA: His plan would cut income tax rates across the board, reduce tax brackets from five to four and cut the highest rate to 33 percent and the lowest rate to 10 percent. It would end the inheritance tax, reduce the marriage penalty, boost tax incentives for charitable contributions, and double the child tax credit to $1,000. Flanked by Latino business leaders, the president tried to spin the plan as one that favors small businesses and individuals, especially the middle class. He says a family of four earning $40,000 would save $1,600 in taxes. That theme was amplified on Capitol Hill, where the treasury secretary formally handed the president's proposal to Republican leaders.</s>SEN. TRENT LOTT (R-MS) MAJORITY LEADER: To the average American family, that is significant. That would pay a year's tuition at a community college, it would allow a family to pay a couple months rent or house note, and their home -- al lot of other really good things could be done with this. We ought to emphasize, what we're talking about: American people being able to keep more of their money.</s>KATAYAMA: Democrats, who favor a tax package half the size, slammed the president's plan as one that favors the rich and threatens the budget surplus.</s>REP. DICK GEPHARDT (D), MISSOURI: The lion's share goes to the wealthiest taxpayers, and mortgages our future.</s>KATAYAMA: The Republicans hope to pass the package as early as July.</s>KATAYAMA: Mr. Bush pledges he'll keep his package capped at $1.6 trillion. But now, the political battle now begins in Congress, where some conservative Republicans want more tax breaks, and big business, which is mostly been left out, wants cuts in corporate income and capital gains taxes, among other things -- Stuart</s>VARNEY: Fred Katayama in Washington; thank you, Fred. Just ahead on MONEYLINE, debating the Bush tax plan with Senator Kent Conrad, who says the Bush plan is too big, and Representative Patrick Toomey, who says it's too small -- Willow.</s>BAY: Stuart, how would the Bush tax plan affect state budgets? According to the Center of Budget and Policy Priorities in Washington, repealing the estate tax could cost the states nearly $10 billion over 10 years. And the National Conference of State Legislatures says, it has received numerous calls from state officials, worried about the impact of the plan. One possible reason: the states are already suffering, blind sided by an economy that's slowed faster than anyone imagined. Lisa Leiter reports.</s>LISA LEITER, CNN CORRESPONDENT (voice-over): North Carolina's governor today declared a fiscal state of emergency.</s>GOV. MICHAEL EASLEY (D), NORTH CAROLINA: Nobody expected the economic downturn that has taken place across the nation, as well as here.</s>LEITER: North Carolina is just one of many states blind-sided by the abrupt turnaround in the economy. A shopping slowdown means a fall off in sales tax revenue; layoffs mean declining payroll tax proceeds. MONEYLINE talked to 10 states trimming their budgets, or thinking about it. Many in the South and Midwest rely on sales and manufacturing taxes, and are suffering the most.</s>RAY SCHEPPACH, NATIONAL GOVERNORS ASSOCIATION: It is really almost all of the states are feeling it to some extent, but it is concentrated in those two areas, and it really is something that has happened, essentially, in the last five to six weeks. States, a couple months ago, were still in relatively good shape.</s>LEITER: Take Tennessee. Almost 60 percent of its revenue comes from sales taxes. December's collections fell $27 million short, the biggest gap in two years. The state could face $130 million budget deficit -- the secretary of state said recently, it looks like a recession. Other southern states hard hit: South Carolina, cutting its budget by 15 percent; Alabama, slicing spending by 6.2 percent; and Mississippi is cutting its education budget. States that rely on manufacturing are hurting too. Michigan wants its agencies to trim their budgets. Northeastern states with service economies are doing better. Still, Connecticut announced $479 million in cuts.</s>GOV. JOHN ROWLAND (R), CONNECTICUT: Using this blueprint, we can continue Connecticut's comeback and, at the same time, brace ourselves for any future economic downturn.</s>LEITER: Even energy-producing Western states are feeling some of the pain. Washington is proposing a smaller budget and Oregon officials say a slowing economy has made balancing the budget harder than its been since the last recession.</s>LEITER: Many states, like Illinois, have yet to feel a big budget impact from the economic slowdown. Only about a quarter of Illinois' revenue comes from sales tax, and state officials tell MONEYLINE they'll have to wait until after April 15th to know whether other tax revenues are down -- Stuart.</s>VARNEY: All right, Lisa Leiter reporting from Chicago. Thank you. While Washington today was consumed with tax cuts, Wall Street was far more interested in Microsoft. The stock took a big hit after Merrill Lynch downgraded it. The big surprise was who delivered the downgrade: controversial Internet analyst Henry Blodget. More on that story later. Microsoft's downturn weighed on both the Dow and Nasdaq. The Dow fell for the third straight session, it was off 66 points, to 10,880. The volume though, just over a billion shares. The Nasdaq lost 45 points. That's nearly 2 percent. It ended at 2562. The volume there: more than 1.8 billion shares. The S&P; was down more than 8 points to close at 1332. Let's go to Terry Keenan at the Big Board for a look at the big movers on the New York Stock Exchange, beginning with a look with retailers -- Terry, what do you have?</s>TERRY KEENAN, CNN CORRESPONDENT: Stuart, January is historically the slowest month of the year for retail sales, but news that it took very heavy discounting to create even modest results last months, unnerved investors today. Added to this growing perception that this economic downturn may be a lot worse than first anticipated. Retail stocks, which had risen more than 10 percent in the month of January, were clobbered today and are now only up on average only about 5 percent so far this year. The weakness in the retailers, combined with a very soft tech sector, compounded the trouble for the market today. Checking some of the Dow losers that we're following: IBM down $2.81 -- in fact, all four of the Dow tech components are lower today. Wal-Mart losing more than $2. It's sales were actually up in January, but it was hit, along with the sector -- the S&P; Retailing Index down 4 percent today. Home Depot down $1.79. To the upside, shares of Merck getting the go ahead for the FDA to market its pain killer Vioxx as a safer alternative to the over the counter alternative. Walt Disney shares also a winner, up $1.13. Still, the market breadth was negative, the margin about 8 to 7 in favor of the losers here, and volume at one point, 1 billion shares -- continues to be a little below average; we've seen quite a slow down in volume in the month of February. Overall, a disappointing session in what is turning to be a tough month for stocks. But, that second big rate cut on January 31 -- there was hope here, that certain retailers and the techs would extend their January gains but, in fact, the first week of February has seen exactly the opposite happen with the Nasdaq and the S&P; Retailing Index each down more than 50 percent from their highs. So, giving back a lot of those January gains -- Willow.</s>BAY: I guess we hope we're glad it's a short month -- Terry Keenan, thank you Today's drop in the Nasdaq wasn't enormous, but it does add to mounting fears that the year 2001 comeback is going off track. On January 24, the index was up more than 15 percent in 2001. Now it is up just 3.7 percent, less than 100 points. The latest retreat was particularly disappointing since today was a special day for the Nasdaq: its 30th birthday. John Metaxas joins us now from the Nasdaq marketsite with a look at why investors left their party hats at home -- John.</s>JOHN METAXAS, CNN CORRESPONDENT: Willow, there were no celebrations planned here today. And perhaps that was fitting: investors really in no mood to celebrate after the 50 percent decline over the last 11 months and an 11 percent decline over the last couple of weeks. Look at the pattern of the Nasdaq today: up at the open, down, and then finishing at the lows. That was the exact same pattern of Cisco Systems' stock today. We're still feeling the Cisco overhang: 100 million shares changing hands in Cisco today. That's huge volume, but less than half what we traded yesterday. Cisco closed at $30 a share, down more than $1. It characterized the day in trading -- KPMG the second most active stock, this an IPO of the day and the first blockbuster of the year, up about $5.50 -- Morgan Stanley Dean Witter brining them public. They came public at $18, the high end of the trading range: this the biggest domestic IPO in Nasdaq history. Microsoft: downgraded today by Merrill Lynch. We've heard that, down $2.50. This really dragged on the index today. The chips were up and then down, including Intel losing 31 cents, even though they have a deal with Siemens. Siemens is going to buy $2 billion worth of the chips from them. WorldCom on the upside: the fifth most active stock. They met expectations with their earnings -- the influential analyst, Jack Grubman, at Salomon Smith Barney saying this stock could double. He reiterates a buy rating on that stock. Now, the Nasdaq is now at the midpoint of its January trading range. And a lot of money is staying on the sidelines -- not sure whether it is going to break up or break down -- Stuart.</s>VARNEY: John Metaxas watching most of them fall on the Nasdaq. Thanks, John. Here's what still to come on</s>MONEYLINE: more on that controversial decision at Merrill. How did Internet guru Henry Blodget get the nod to cover Microsoft? And Congress opens hearings into an 11th-hour pardon, as a former White House lawyer faces the heat for defending Marc Rich. Plus, retailers come out with January numbers. We'll head live to Macy's to check out what American consumers were buying, and at what price.