Bush offers bold tax cuts

Proposal presented as quick economic stimulus

$674 billion package projected over 10 years

Critics believe deficit will swell

Centerpiece is ending tax on individuals' dividends

January 08, 2003|By David L. Greene | David L. Greene,SUN NATIONAL STAFF

WASHINGTON - President Bush proposed a bold and expensive package of tax cuts yesterday that is intended to spur growth and create jobs but would likely swell budget deficits for the foreseeable future.

Easing the tax burden on investors, small-business owners and ordinary families, Bush argued, would energize the economy. He said his plan would hand consumers more money to spend and encourage businesses to hire more workers.

But many economists reacted skeptically to the proposal, which is projected to cost $674 billion over 10 years, far more than was expected as recently as last week.

They said that besides raising deficits, Bush's plan would probably offer little immediate benefit to the sluggish economy. Democrats charged the package was tilted to favor the wealthy.

Nevertheless, in a speech in Chicago, Bush said, "These tax reductions will bring real and immediate benefits to middle-income Americans," adding, "This growth and jobs package is essential in the short run."

The centerpiece of the plan is the elimination of taxes on corporate dividends paid to shareholders. At an estimated cost of $364 billion, this provision is the largest item of the package.

The president also called for an acceleration of all the income-tax rate reductions from the $1.3 trillion tax cut of 2001. Those tax cuts would take effect this year rather than, as scheduled, over the next several years. And Bush wants the rate cuts to be made permanent, rather than expire after a decade.

The president's plan includes other provisions, including an increase in the child tax credit, from $600 to $1,000, for 34 million families and up to $3,000 each for some unemployed workers to help pay costs involved in finding a job.

He would also expand the 10 percent income tax bracket - the lowest - to ease the load on some lower-income Americans.

But contrary to some expectations, the Bush plan would offer no money for state governments facing huge financial burdens.

The package is sure to set off intense debate between the two parties in Congress. With most Democrats sharply opposed to it and fiscal conservatives from both parties concerned about growing deficits, the Bush plan faces major obstacles.

Though Republicans control both chambers, they must compromise with Democrats to pass any economic plan. That means some of Bush's tax-cut provisions could be dropped or scaled back.

The scope of Bush's proposal took even many conservatives by surprise.

Only weeks ago, the White House seemed to be considering more modest ways to give the economy a quick jolt. But Bush settled on a far more ambitious and costly approach, the results of which might not be fully evident for years.

Some economists and other analysts said Bush's decision carries political risk. Had Bush focused on smaller tax cuts and policies to help the unemployed find jobs, they said, Democrats might have supported him.

Instead, Bush unveiled a package of deeper, permanent tax cuts that might produce little short-term relief and that Democrats are sure to use to accuse him of favoring the rich and sending the budget into deficit. The huge costs associated with a possible war in Iraq could further strain the economy.

Sen. Joseph I. Lieberman, a Connecticut Democrat who is expected to seek the presidency in 2004, called Bush's plan "an irresponsible, ineffective, ideologically driven wish list that is oblivious to the particular problems our faltering economy is facing."

Like many other Democrats, Lieberman favors a cheaper, more modest plan that would offer incentives to businesses to hire workers and tax relief for the lowest-paid Americans.

`A shot in the foot'

Senate Democratic leader Tom Daschle called Bush's program "a misguided plan reflective of this administration's misplaced priorities."

"I think it will give the economy a shot in the foot," Daschle said tartly.

Alan Auerbach, a professor of tax policy at the University of California-Berkeley, said the president was promoting a worthy - if debatable - plan for a sustained economic recovery in the long run. But he said the plan would do little to stimulate the economy quickly, even though the president is trying to sell it on that basis.

"This is not a stimulus," Auerbach said. "This is a long-run measure that is not without its problems, but is worth thinking about. Now the White House could portray it like that. But then, people would ask, `Why are you doing this now?'"

White House aides, meanwhile, tried to back the president's point that he was offering an immediate jolt to the economy, saying his plan would create an estimated 2.1 million jobs over the next three years.

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