CHICAGO — President Bush formally unveiled a plan Tuesday designed to spur America's sluggish economy through bigger, faster tax cuts--an approach he said will increase consumer spending and reinvigorate the stock market. But critics said it will mostly benefit the rich and help lower- and middle-income Americans little or not at all.
The plan will cost the federal government $674 billion over 10 years, more than half of it by eliminating the tax on cash dividends companies pay to shareholders, according to White House estimates.
The proposal would also accelerate all income tax rate cuts in Bush's 2001 tax plan -- including changes in tax brackets, the so-called marriage penalty and child credits -- so they become effective this year. Under existing law, the cuts would have come into force gradually until 2010.
The president also proposed a new tax incentive for small business and the creation of "reemployment accounts" to help the unemployed get training and other services needed to find jobs.
For The Record
Los Angeles Times Wednesday January 15, 2003 Home Edition Main News Part A Page 2 National Desk 12 inches; 432 words Type of Material: Correction
Recession -- An article Jan. 8 in Section A about President Bush's new economic plan incorrectly reported that the economy was in recession when he took office. In fact, the recession began two months later, in March 2001.
"The jobs and growth proposals I've outlined today are a focused plan to encourage consumer spending, to promote small-business growth, to boost confidence in our markets and to give critical help to unemployed citizens," Bush told a luncheon of 2,200 business executives hosted by the Economic Club of Chicago.
The stimulus plan follows months of White House worry about the economy, which was in recession when Bush took office in January 2001, and has since shown only anemic signs of recovery. Bush and his staff, mindful of the 2004 presidential election and how a faltering economy damaged his father's reelection bid in 1992, are eager to jump-start growth.
The stimulus plan's focus on tax cuts has been especially controversial, even within the administration, because the cuts are expected to increase the federal deficit -- by $102 billion this year alone, according to White House officials.
With an eye toward Democrats' efforts to dismiss its plan as a sop to the rich, the administration had originally considered excluding the wealthiest Americans from the tax-cut acceleration. But it ultimately decided to make the cuts across the board, administration officials said.
"The president does not believe in punishing people because they are successful," White House Press Secretary Ari Fleischer said.
Also dropped from the plan at the last minute was a proposed $10-billion aid package for the states to create jobs. State governments across the nation face severe budget crises, and the president's plan will have the indirect effect of cutting into state revenue as well.
A senior administration official briefing reporters after the speech said the president recognizes that the plan will increase the federal deficit in the short run. His hope is that in the long run, economic growth will make up the lost tax revenue.
"Fiscal considerations have not gone out the window," the official insisted.
Bush's plan has been assailed from the start by Democrats. Their criticism broadened Tuesday to question cutting taxes for the rich when the nation is on the brink of a costly war they say will be fought by the non-rich.
"Never in a time of war have we reduced the tax burden on the most privileged," said Rep. Charles B. Rangel (D-N.Y.). "At the same time, we expect the middle-income to shoulder a larger burden and we send a disproportionate number of lower- and middle-class kids to fight a war. If this is class warfare, I ask, who started it?"
The Bush plan does include some elements that are attractive to Democrats, including the increase in the per-child tax credit, acceleration of tax cuts for married couples and small- business tax breaks. But Democrats complain that such provisions are too small a part of the Bush package -- just 24% over the 10-year period.
Congressional Republicans welcomed Bush's proposal and promised quick action. But Senate Finance Chairman Charles E. Grassley of Iowa said it would probably not clear Congress before April, when a war with Iraq might be underway. Passage in the Senate is particularly problematic because it usually takes support from 60 senators -- not a simple majority of 51 -- to prevent a filibuster and pass a bill.
With Democrats criticizing Bush's plan for its effect on the deficit, Republicans -- who for years pushed for a balanced budget -- are in the unusual position of arguing that deficits do not matter.
"What we need to do for an economic stimulus package is not look at what the cost is but what the impact will be on the economy," said Sen. Rick Santorum (R-Pa.).
Bush took pains to insist that the proposed tax cuts would benefit a broad swath of Americans. The White House contends that it will mean tax cuts averaging $1,083 for 92 million Americans this year. In particular, Bush repeated Tuesday that 50% of dividend payouts go to senior citizens who "often rely on those checks for a steady source of income in their retirement."