- The Washington Times - Tuesday, January 14, 2003

LOS ANGELES, Jan. 14 (UPI) — California Gov. Gray Davis and House Democratic Leader Nancy Pelosi Tuesday expressed dismay at the economic stimulus package proposed by the Bush administration, saying the plan ignores the cash-strapped states that are on the front lines of the current economic sluggishness.

The two Democrats contended in a conference call with reporters that the American economy would not be stimulated by ending the tax on dividends nor would consumer confidence in the stock market improve unless something was done to spur job creation immediately, if not sooner.

"I think it is generally agreed that the president's package has no short-term stimulus, and most economists will tell you that if there is a time for a stimulus, it's when there has been high job loss and waning consumer confidence," said Davis, whose state is faced with a $34.6 billion budget deficit over 18 months that is blamed largely on a downturn in tax revenues due to the stock market's malaise.

While initially maligned as a tax break for the wealthy, the president's $674 billion package of tax cuts and other provisions was chastised by Davis and Pelosi as being ineffective in terms of getting California and other states back on their financial feet.

Bush Tuesday urged Congress to pass a welfare reform plan that would provide the states with $17 billion for their assistance programs, but Pelosi said the White House should be considering assistance to the states as a part of the economic stimulus package.

"Having a specific plan for the states is absolutely essential and I think the Republican and Democratic governors have to make that very clear to the president because it never occurred to him to put that element in their proposal," accused Pelosi. "Then again, their proposal is not a stimulus — so you can see why they would not see the need to help the states immediately."

The Democrats have proposed their own plan that contains financial assistance to the states, and have argued that the Bush plan is based on the Reagan-era strategy of the trickle-down effect that will most likely bring some gradual improvements to the economy at a time when prompt action is required to prevent further slides in the confidence and finances of middle-class investors whose pension money and savings helped fuel the last stock market surge.

"People lack confidence when they see co-workers being laid off and they are fearing for their own jobs," Davis said. "When they see everyone around them doing well, they feel better and are more willing to spend money; everyone knows the consumer is the bulwark of the economy."

Pelosi pointed out that the administration's proposal to end the "double taxation" on stock dividends would both take too long to implement and would have only a minimal benefit on investors who have money tied up in 401K plans or in companies that don't pay dividends, or taxes on those dividends.

"I don't think that the evidence is there that ending the so-called double-taxation on dividends will grow the stock market or increase the value of stocks," Pelosi said. "That's a legitimate debate we should have."

Although states have the ability to slap their own tax on dividend income, Davis explained that was unlikely to happen in most states where tax payments are based largely on the figures used by taxpayers on their federal 1040s.

"All of the states just piggyback on to the (tax) filings to the federal government for the purposes of collecting taxes on dividends owed to the states," said Davis, a former state controller. "We'd have to develop the software to do that. I assume it can be done, but we haven't yet."

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