President George Bush yesterday outlined a bold "growth and jobs" stimulus plan for the US economy that will wipe out taxes on stock dividends paid to investors, and bring forward sweeping income tax cuts not due for another three years.
"We can preserve the hard won gains our economy has made and advance toward greater prosperity," Mr Bush told the Chicago Economic Club, where an audience of business leaders greeted his blueprint for recovery with enthusiastic applause.
The White House estimated the cost of the stimulus package at $674 billion (€647.1 billion) over 10 years, more than double what the president had been considering only a week ago.
Analysts said Mr Bush was taking a big risk with an audacious plan which would widen the budget deficit and open him to criticism from Democrats of favouring the wealthy.
The biggest single element of the package was the elimination of taxes on corporate dividends - excluding dividends paid by money-market mutual funds - at an estimated cost to the exchequer of $364 billion over 10 years. Mr Bush said it was unfair to impose double taxation. First there was tax on corporate profit, then on investors who receive profits, which allowed shareholders to keep as little as 40 cents on the dollar, he said. "Double taxation falls especially hard on retired people," he added.
The accelerated tax cuts will benefit all levels of US taxpayers including the wealthiest Americans, despite serious reservations in the White House right up to this week because of the risk of adverse political reaction.
Indeed Democrats immediately charged that the scheme gave costly tax relief to richer Americans under the pretence of jump-starting the economy, and that Mr Bush's designs offered little to lower-income Americans.
"The president really is investing $600 billion on an old, old Republican theory of trickle-down economics," said Democratic Congressman Mr George Miller of California. "We're saying no. Give it to the people who need it."
Mr Bush will have little difficulty getting his plan through Congress. Republicans officially took control of both houses on Monday, following November's mid-term elections. Mr Bush's father, George Bush snr, failed to win re-election in 1992 because of a sluggish economy, and several observers noted that the stimulus scheme was timed to boost the US economy and provide benefits to millions of Americans well before the 2004 president election when the economy could again be the defining factor.
Some 92 million Americans will keep $1,083 more of their own money this year with tax breaks, and a family of four with two wage earners would benefit by more than $1,100 in tax relief, Mr Bush said. The measures included a $400-per-child increase in tax credit for families with children.
In a separate fact sheet the White House said that 46 million married couples would receive an average tax cut of $1,716 this year while 23 million small business owners would receive tax cuts averaging $2,042.
Mr Bush also proposed that 800,000 unemployed workers should have their benefits extended from December 28th, when they were cut off, and that people who lost their jobs should be given a "personal re-employment account" of $3,000 to pay for expenses while seeking new work. "There are warning signs I won't ignore. Americans are paying one-third of their income in taxes," said Mr Bush. "This puts pressure on the family budget."
The time to deliver the tax rate reductions was now "when they can do the most good for American businesses. "I'm asking Congress to make all the tax rate reductions effective this year... retroactive to January 1st. If tax relief is good enough for Americans three years from now it is good enough for Americans today."
The president was flanked by his new team of economic advisers including Treasury Secretary-nominee Mr John Snow. Former Treasury Secretary Mr Paul O'Neill was fired in December partly for his lack of enthusiasm for new tax cuts.
The administration's $1.35 trillion tax package of 2001 called for tax rate cuts in 2004 and 2006 and phased in increases in the tax credit for each child up to $1,000 by 2010. Mr Bush's plan would also boost tax relief for small businesses by increasing equipment purchase write off from $25,000 to $75,000.
