Bush leans on past to push plan


Published: Thursday, January 9, 2003 at 6:01 a.m.
Last Modified: Thursday, January 9, 2003 at 12:34 a.m.

WASHINGTON - President Bush, who stunned his critics in 2001 by winning passage of the biggest tax cut since Ronald Reagan, is hoping to repeat history with a bolder-than-expected $674 billion stimulus plan.

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President Bush outlines his economic stimulus plan during remarks to business leaders in Chicago on Tuesday.

(AP Photo)

But whether he wins or loses in Congress, his strategy is almost certainly aimed at avoiding another bit of history - his father's costly political mistake of appearing to ignore the pain inflicted by the nation's last jobless recovery.

"Too many of our citizens who want to work cannot find a job and many employers lack the confidence to invest and create new jobs," Bush said Tuesday in Chicago, where he unveiled his new package of tax cuts. He said the cuts were needed to bolster a sputtering recovery. Bush was courting Democratic and Republican lawmakers Wednesday in a White House meeting.

Indeed, the past year's performance bears many similarities to the period when Bush's father was in the White House and the economy was coming out of the 1990-91 recession with economic growth so weak that the unemployment rate kept rising.

The jobless rate returned to an eight-year high of 6 percent in November. Analysts are predicting the rate will head even higher in coming months, probably topping out at 6.5 percent in early summer, before stronger growth starts to convince businesses they can hire back laid-off workers.

Bush doesn't want his 2004 Democratic opponent to enjoy the kind of success Bill Clinton had in 1992 by using a rising jobless rate to persuade voters to reject an incumbent president.

Both the size of Bush's new stimulus package - at $674 billion, more than double what the White House just a week ago had been indicating would be offered - and its component parts, which are weighted heavily toward tax relief for the wealthiest Americans, demonstrate that Bush is not afraid to be bold in pushing his economic agenda.

Bush, who complained last week that critics were using "class warfare" arguments, rejected the advice of some of his advisers to tone down the tax breaks for the wealthy to blunt such criticism.

Instead, he proposed accelerating all the rate cuts scheduled for 2004 and 2006, including those for the top bracket of wealthy taxpayers, and proposed eliminating the tax on corporate dividend payments, not just cutting it in half as contemplated.

The elimination of federal taxes on the dividends corporations pay investors will cost $364 billion, more than half of Bush's $674 billion total package. The joint Urban Institute-Brookings Institution Tax Policy Center estimated that 42 percent of these tax savings would go to the wealthiest 1 percent of taxpayers.

Many economists were perplexed by the plan's heavy reliance on the dividend tax elimination in a package that is supposed to jump-start a sputtering economy, given that taxpayers won't even see this relief until next year when they file their 2003 tax returns.

Some officials say the dividend tax elimination will lift spirits on Wall Street, where investors have been battered by a $7 trillion drop in stock valuations during the past three years. Some advisers estimate that stock prices could rise by 10 percent with an elimination of the dividend tax.

White House spokesman Ari Fleischer said Wednesday the dividend tax's elimination was not one of the measures in Bush's package that was meant to stir growth, except possibly in the long term.

Instead, it is "a chance to do something fundamentally good for long-term growth," Fleischer said. He said Congress could act on the package as early as this summer.

Of course, Bush may also be using the size of his package as a bargaining ploy, intending to trade away some elements later for items more favored by Democrats.

There are already competing Democratic proposals in both the Senate and House that have far smaller price tags and offer much more relief to lower-income workers and cash-strapped states.

Two potential Democratic presidential rivals, Sens. Joseph Lieberman and John Kerry, blasted Bush's package on Tuesday as a giveaway to the wealthy at the expense of middle-class workers.

Fleischer said earlier Wednesday that many Democrats opposed Bush's 2001 tax plan "at first blush," but some were converted.

However, there was an early sign that moderate Republicans might balk at parts of Bush's proposal. Moderate Republican Sen. Lincoln Chafee of Rhode Island planned to join Sen. Dianne Feinstein, D-Calif., to announce legislation on Thursday that would freeze the top income-tax rate at its current 38.6 percent until budget surpluses return.

In the House, where the rules give the majority Republicans more control over the flow of legislation, House Speaker Dennis Hastert, R-Ill., predicted the measure that is finally passed "will look very much like what the president has asked for."

While economists generally applauded the plan as carrying effective stimulus measures, they questioned why Bush had earmarked only a token $3.6 billion to states.

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