President Bush plans to unveil an economic-stimulus package Tuesday that is expected to rely chiefly on tax cuts but also include an extension of unemployment benefits.
Top White House aides said last week that details of the proposal, which is expected to offer about $300 billion in stimulus measures over the next decade, were still being debated. The proposal is expected to set the stage for a heated political debate over how best to boost the sluggish U.S. economy.
Bush and most of his fellow Republicans favor across-the-board tax reductions, which benefit the wealthy the most because they pay the most in taxes. Democrats are calling for tax cuts targeted at lower-income groups, and some also want the federal government to give money to cash-strapped state governments.
With economic growth at a crawl, both parties are aware that the economy could shape up as a central issue in the 2004 presidential election. Democrats see Bush's economic record as his weak spot. Bush wants to demonstrate that he is doing what he can to help the economy recover.
Speaking to reporters at his ranch in Texas, Bush rejected Democratic criticism that his policies favored the rich.
"I'm concerned about all people," he said. "I understand the politics of economic stimulus. If some would like to turn this into class warfare, that's not how I think. I think about the overall economy and how best to help those folks who are looking for work."
Bush, who will release his proposal during a speech in Chicago, is expected to call for accelerating income-tax cuts scheduled for 2004 and 2006, so that they would take effect this year instead. The tax cuts were part of the $1.3 trillion, 10-year package passed in 2001.
While the administration had considered not accelerating the cuts scheduled for the top rate, currently 38.6 percent, to deflect criticism, a senior White House official said late yesterday that Bush had rejected this.
This official said Bush had decided that if he goes ahead with accelerated reductions in his proposal, it will include all rates.
But in an effort to deflect some criticism that the plan is tilted toward the wealthy and to hold down costs, the reduction in taxes on corporate dividends - earned by Americans with enough money to invest in the stocks of companies paying dividends - is not expected to cover a total exemption from taxes.
One possibility would be to exempt just the first $1,000 in dividend payments each year. That would make stocks more attractive to average investors but would do little to relieve the tax burden of the very wealthy, who receive much more in dividend payments each year.
Administration officials said eliminating taxation on some dividends would help restore the confidence of investors and encourage investments in companies that were making money.
The administration also may propose changes in 401(k) retirement accounts, such as allowing greater contributions and increasing the age limit at which individuals must start withdrawing from their accounts.
Business groups are pushing for tax breaks to encourage companies to buy new equipment. One proposal would let companies depreciate such equipment more quickly, allowing them to take a larger tax deduction. Another proposal would expand the ability of mainly small businesses to deduct more of their equipment purchases.
Bush also said recently that he wanted Congress to extend unemployment benefits. A previous extension, under which the unemployed could collect benefits for up to 39 weeks instead of the usual 26 weeks, expired Saturday for 750,000 people. Lawmakers could not agree on a new extension of benefits in December.
The Labor Department reported yesterday that new claims for unemployment benefits rose to 403,000 in the week that ended Saturday, a sign that the job market remains sluggish.
"I am concerned about those who are looking for work and can't find work, and so next week when I talk about an economic-stimulus package, I will talk about how best to create jobs, as well as how to take care of those who don't have a job," Bush said.
Two Democratic presidential contenders, Sens. John Edwards of North Carolina and John Kerry of Massachusetts, are among those who have criticized Bush's economic policies recently.
Sen. Max Baucus of Montana, the top Democrat on the Senate Finance Committee, last month put out his own stimulus proposal that was much more heavily weighted to increases in government spending.
Baucus' $160 billion package included a one-time $300 tax cut for individuals and $75 billion in block grants to cash-strapped states.
On the other hand, conservatives are concerned that Bush may be swayed too much by Democratic attacks and will end up presenting Congress with a watered-down stimulus proposal that will not provide enough in investment incentives for the wealthy and businesses to jump-start the economy.
"If Bush did put out a plan that surrendered to the class-war critics, he would lose many in his conservative base," said Stephen Moore, president of the Club for Growth.
Sen. Charles E. Grassley (R., Iowa), the incoming chairman of the Finance Committee, said he was interested in supporting proposals that "that will work quickly, that will do the most good for the most people, and that will pass in a bipartisan way, given the realities of working in a closely divided Senate."
Bush may be forced to make compromises to get the 60 votes needed in the Senate to keep opponents from blocking passage of a bill that all agree will have to be passed quickly to ensure that the economy is growing at significantly higher rates by next year.
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