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Bush Stimulus Plan Calls for More Tax Cuts

Proposal to be unveiled next week is said to include a trim in levies on stock dividends and cuts for all but the highest wage earners.

January 03, 2003|Peter G. Gosselin and Edwin Chen | Times Staff Writers

CRAWFORD, Texas — President Bush pledged Thursday to unveil an economic stimulus plan next week that sources said will be twice the size of what had been under consideration, and is likely to include such Democrat-backed measures as state aid to create jobs.

Sources said the plan will include a larger-than-expected cut in the tax on corporate dividends, $100 billion or more over 10 years in state aid, a generous extension of unemployment benefits, and probably a speedup of tax rate cuts for all but the very highest earners.

The plan appeared aimed at answering criticisms that the administration's tax policies favor the wealthy. In remarks at his ranch near here, Bush expressed concerns that the package not be seen as a sop to the rich as Democrats have charged.

"I'm concerned about all the people," the president said. "I understand the politics of economic stimulus -- that some would like to turn this into class warfare. That's not how I think."

Sources said the price tag on the new, enlarged White House package could run as much as $600 billion over 10 years. Most speculation to date has pegged the cost of the expected package at about $300 billion.

White House officials have apparently decided that the economy is sufficiently weak, and the political dangers to Bush sufficiently great, that they are brushing aside concerns about growing budget deficits in order to pay for the expanded stimulus plan.

Even without the stimulus plan, the deficit is expected to run $150 billion this fiscal year, according to the Congressional Budget Office.

The plan's centerpiece will, as expected, be a sharp reduction in the tax on cash dividends that companies pay shareholders, which would inordinately benefit wealthy investors.

Indeed, sources said the White House has decided to call for completely eliminating the tax for individuals at a cost to the government of $300 billion in lost revenue over the next decade. Administration officials previously suggested that they would only seek to halve the tax.

Such a move could provide a major boost for the stock market, which is still struggling to rebound from the worst decline in a generation.

But in order to quiet critics and improve the proposal's chances of congressional passage, sources said the administration will package the dividend tax cut with an aid package to the states, an unemployment benefit extension and other measures that would primarily benefit low- and middle-income households.

To give the nation's still-struggling economy the maximum boost possible, White House officials want to "front-load" the plan, scheduling its tax cuts and spending hikes to take effect in the first few years of the program.

While it was previously believed that the president would seek an immediate injection of no more than $40 billion in growth-spurring cuts and spending increases in the first year, sources said he now plans to ask for double that, or more than $80 billion.

The new proposal would come atop Bush's 10-year, $1.35-trillion tax cut Congress approved in 2001, and will not include money to fulfill the president's pledge to make the previously approved cut permanent.

White House spokeswoman Claire Buchan refused to comment Thursday concerning the size or contents of the plan, saying Bush is "still reviewing his options." The president is scheduled to unveil the proposal Tuesday during a speech in Chicago.

In finalizing the new package, Bush said that what he has uppermost in his mind are those without jobs.

"What I'm worried about is job creation. And I'm worried about those who are unemployed.

"I am concerned about those who are looking for work but can't find work," he told reporters during a Thursday tour of his Texas ranch.

"And so next week when I talk about an economic stimulus package," he said, "I will talk about how to create jobs, how best to create jobs, as well as how to take care of those who don't have a job."

As for the overall economy, Bush expressed his hope that investors realize that the strength of the economy is especially noteworthy -- "given the fact that we have been through a recession and a terrorist attack, a breach of corporate confidence because of some malfeasance."

Despite all that, the president marveled that "the economy still grows. That's very positive."

As outlined by sources, Bush's larger-than-expected stimulus plan would carry several political advantages.

* It would show the president acting decisively to turn around an economy that, while not sinking, seems unable to regain its former snap.

* In doing so, the measure would help expunge the political shadow of Bush's father, former President Bush, who won a popular war against Iraq only to lose his ensuing reelection bid, largely because of the public perception he paid insufficient heed to a deteriorating economy.

* By including state aid and unemployment benefits, the new White House package could help attract Democrats' support in the narrowly Republican Senate.

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