WASHINGTON — President Bush will propose Tuesday to stimulate the economy by eliminating the tax on stock dividends and by cutting taxes this year for nearly 100 million taxpayers, at a cost of some $600 billion to the federal Treasury over 10 years.
The president also will call for up to $3,000 each in new subsidies to the unemployed to help them cover expenses such as childcare and transportation while they look for work.
Bush’s speech before the Economic Club of Chicago will sound the official opening bell of a debate over economic policy that is expected to dominate Washington domestic policy until summer. The outcome not only will affect the jobs and incomes of ordinary Americans, but also will color political conditions leading into the president’s campaign to win re-election in 2004.
Democrats in the House of Representatives jumped the gun Monday by releasing their own stimulus plan, a $136 billion proposal that would extend unemployment benefits, provide tax rebates of up to $600 per working couple, allow small businesses to write off more expenses and give states extra money for homeland security, Medicaid and highways. They said their proposal would create at least 1 million jobs, and would be fairer and much less expensive than Bush’s program.
Rep. John Spratt of South Carolina, the ranking Democrat on the House Budget Committee, said the Democratic plan was designed to give the economy an immediate boost in 2003-04 and not to add significantly to long-term debt. Over 10 years, he said, their plan would even recoup some money and cost only $100 billion.
Senate Republicans also moved quickly on their first day back in Washington after the holidays. Incoming Majority Leader Bill Frist, R-Tenn., said he planned to bring a 13-week extension of unemployment benefits for jobless workers to floor debate Tuesday and hoped the president would be able to sign it into law by the end of the week. That would require House passage as well.
One late addition to Bush’s package seems tailored to help him rebut critics who say his approach favors the rich; White House aides confirmed Monday night that the president also will call for creation of “re-employment accounts” of up to $3,000 each to help the unemployed find jobs.
Independent economic analysts said a well-constructed stimulus package could boost economic growth in the second half of 2003 and guard against the risk of a slide back into recession. Analysts said they expected Congress to approve a final compromise that would inject $50 billion to $100 billion into the economy in 2003.
It’s not just the size of any stimulus package that matters, it’s also its makeup. If money from a tax cut is saved instead of spent, it adds little to economic growth. To succeed, stimulus measures need to take effect quickly and to focus on encouraging spending, analysts said.
Analysts said accelerating tax cuts that now are set for 2004 and 2006, as Bush is expected to endorse, could help, although much of the benefit would go to upper-income people, who are less likely to spend tax savings. That raises political reservations about social equity and economic ones about the move’s utility in stimulating the economy.
To boost spending quickly, economists generally favor directing money to lower-income groups, because they are more likely to spend it for necessities.
Eliminating the dividend taxes that shareholders pay is at the center of the president’s plan. The administration says eliminating taxes on dividends — costing the Treasury $300 billion over 10 years — could benefit 35 million investors, nearly one-third of them senior citizens, and boost stock prices by up to 10 percent.
Independent analysts don’t think a dividend tax cut would do much for short-term growth. The largest beneficiaries would be wealthy households, which are less likely to spend the money. Also, the impact would be delayed until 2004 for those who don’t adjust their income-tax withholding and simply take the benefit when they file their 2003 taxes.