Bush to Propose $600 Billion Economic Stimulus Package

By EDMUND L. ANDREWS
New York Times

ASHINGTON, Jan. 3, 2003— President Bush could propose as much as $600 billion in tax cuts and new spending measures over the next 10 years, an economic stimulus package nearly twice as big as even Republican lawmakers had been expecting, administration officials said today.

White House officials said the package, which Mr. Bush plans to outline on Tuesday in Chicago, was likely to include billions of dollars for state governments wrestling with huge budget shortfalls.

Officials would not provide details of the spending proposals, although they are certain to include extension of unemployment benefits. They could also include assistance for state Medicaid programs and money for improving domestic security.

Mr. Bush may also propose tax cuts that are deeper than administration officials have been describing. One official said Mr. Bush would call for speeding up rate reductions for taxpayers at all income levels, rebutting speculation that he might slow down on reductions for people in the top tax bracket.

Mr. Bush may also push for an even bigger cut in dividend taxes than the 50 percent reduction administration officials were considering in late December.

The latest plans suggest that Mr. Bush is girding for a partisan battle with Democratic leaders in Congress, who accused him today of pursuing a misguided plan that would favor the rich and do little to help the sluggish economy.

Firing a shot even before Mr. Bush formally outlines his tax package next week, the Senate Democratic leader, Tom Daschle, said the president's plan would be "the wrong idea at the wrong time to help the wrong people."

Democratic lawmakers are pushing for tax breaks intended for lower- and middle-income families, with some proposing a temporary "holiday" from payroll taxes for Social Security and others proposing one-time rebates.

White House officials declined to say how big Mr. Bush's final tax proposal would be, but they suggested that the plan was, if anything, more aggressive than previously reported when it came to tax cuts for investors and people in the highest tax brackets.

Even a 50 percent reduction in dividend taxes would total about $150 billion over 10 years and would probably be the centerpiece of his tax plan. Under such a plan, the tax benefits flow almost exclusively to the very wealthiest taxpayers because they are the ones who receive most dividends.

Calculations by the Tax Policy Center, a nonprofit research group run by the Urban Institute and the Brookings Institution, show that about 64 percent of the benefits will go to the wealthiest 5 percent of taxpayers.

Administration officials acknowledge that wealthy taxpayers will be the primary beneficiaries, but they argue that reducing dividend taxes will reduce distortions in the current tax system and lift the stock market.

White House officials said Mr. Bush was also likely to propose speeding up previously scheduled rate reductions for all classes of taxpayers.

"Congress has already concluded that tax relief is necessary and has enacted it into law," said one official, alluding to income tax reductions scheduled to take effect in 2004 and 2006. "The president doesn't see any need to distinguish between groups."

Today, one day after Mr. Bush announced he would detail his plan next Tuesday, Democrats began pre-emptive attacks that concentrated heavily on what they said was the unfairness of the plan for middle-income and poorer families.

"The president's plan won't help middle-income families, it won't contribute to economic growth, it won't make our homeland more secure," said Mr. Daschle, in the text of a radio address to be delivered on Saturday.

Citing calculations by the Tax Policy Center, Mr. Daschle said that a person making more than $1 million a year would save $24,000 in taxes under Mr. Bush's plan while a person earning from $40,000 to $50,000 a year would save only $76.

Mr. Bush has already denounced such criticisms as "class warfare," though White House officials are sensitive about the issue.

Democratic lawmakers are not the only critics. Many economists and business analysts, even those who favor the tax cuts in theory, said today that Mr. Bush's core idea of slashing dividend taxes would do little to increase economic growth or job creation.

"If you are looking for short-term stimulative effect, you don't find it there," said Hank Gutman, head of the federal tax policy practice at KMPG, the accounting firm. "All it means is that people are going to be trading their stocks more. They won't necessarily be investing any more, and companies won't have any more money to spend.


William Dudley, chief United States economist at Goldman Sachs, said many of the tax cuts would not even been felt until 2004, too late to provide a quick boost this year to an economy plagued by uncertainty.

"The total amount of the stimulus isn't going to be very big in 2003," Mr. Dudley said.

He added that he was assuming the tax cuts would be front-loaded to provide as much as $150 billion in relief in the first two years, but he said the actual benefits this year were likely to run from $25 billion to $50 billion, a relatively small sum in a $10 trillion economy.

White House officials insist that their plans can have a big impact and predict that the dividend tax cut will lift stock prices, improve business confidence and reduce corporations' costs of raising money.

But they acknowledge they are not greatly interested in short-term economic stimulus and disparage the idea of trying to fine-tune the economy. The real issue, they say, is improving the basis for long-term growth.

"The concern here is not over the next couple of quarters," one senior White House official said. "The concern is making sure we have the right flexibility in place to ensure the economy can grow at its full potential."

Many analysts, including those who support the Bush administration's ideas, see the tax package primarily as an effort to advance a broader philosophical agenda of overhauling the entire tax system.

Republican analysts have long argued that taxing dividends amounts to double taxation of corporate profits — once at the corporate level and once as income to shareholders.

The current system encourages companies to run up big debt, they argue, because interest payments are tax deductible and dividends are not. And it discourages companies from paying out dividends.

"For political reasons, they think calling it stimulus is going to resonate better than fundamental tax reform," said Joel E. Slemrod, a tax economist at the University of Michigan who supports dividend tax cuts.

Mr. Bush has been huddling with economic advisers for days at his ranch in Crawford, Tex. But Republican lawmakers and many business lobbyists say they still have little sense of many important details in the new tax proposal.

Many believe that Mr. Bush will include several measures intended for middle-income families, like a faster increase in the child-care tax credit to $1,000 from $600 and more rapid relief of the so-called marriage penalty that pushes many two-income couples into higher tax brackets.

White House officials are not interested in a reduction in the payroll taxes for Social Security and Medicare. Some Democrats have argued that a holiday on payroll taxes would provide the most direct stimulus.

But Mr. Bush does plan to push for a new extension of federal unemployment benefits. The previous law expired on Dec. 28, cutting off benefits for about 750,000 people whose state-financed unemployment benefits had already run out.