- The Washington Times - Monday, January 6, 2003

WASHINGTON, Jan. 6 (UPI) — President George W. Bush is expected to unveil a $600 billion recovery package Tuesday extending unemployment benefits, accelerating 2001 tax reductions, ending taxes on stock dividends and creating new incentives for business investment.

"The president's plan will encourage consumer spending, it will promote investment throughout our country and in the business community and small business, and it will also help the unemployed," White House Press Secretary Ari Fleischer told reporters Monday.

He said that "92 million taxpayers will receive on average a tax cut of $1,083 in 2003" and what he called a "typical family of four making $39,000 in income will receive a total $1,100 in tax relief under the plan."

The president will present his plan to members of the Economic Club of Chicago at a televised luncheon at 12:15 p.m. CST. Though the White House has not provided complete details, the following are the salient points of the plan:

— Accelerate tax rate cuts passed in the 2001 tax bill.

— Eliminate taxes on stock dividends.

— Revise the child tax credit to produce a rebate in 2003 and end the so-called marriage penalty.

— Extend unemployment benefits.

— Increase tax depreciation allowances on business plants and equipment.

The president's plan and the debates within the administration have leaked out for weeks, and opposition to his ideas began well before Tuesday.

A senior administration official Monday night said Bush will propose grants of as much as $3,000 to the unemployed as part of a new program to encourage people to find new jobs quickly.

In a background briefing in advance of Bush's scheduled speech Tuesday, the official said the personal employment accounts will be aimed at those most likely to exhaust their unemployment benefits as well as those who may already have done so.

The $3.6 billion, two-year program is designed to cover 1.2 million Americans.

"The way the re-employment bonus works, if you become re-employed within 13 weeks, you can keep the remaining balance," he said. "It may be the full $3,000 … or it may be some portion of the $3,000."

Recipients will get 60 percent of the remainder at employment and the rest after they've been on the job for six months.

The official said the Labor Department studied programs in various states and found that even relatively small bonuses of just a few hundred dollars encouraged people to get back to work earlier — an average of one week earlier — than those who did not have access to the bonuses.

"The statistics of the unemployment insurance program nationally show a very small percentage …. somewhere between 2 (percent) and 5 percent of people who are on unemployment insurance right now are getting any type of services, job training services," the official said. "This will give people more flexibility and encouragement to get training. We think this is a new way of looking at helping dislocated workers get help in the marketplace and become fully employed."

The money also can be used for training, child care and relocation. The official said this program would be in addition to any extension of unemployment benefits passed by Congress.

Each state would get a share of the $3.6 billion based on unemployment rates. It would be up to the states to determine the actual size of the grants.

"This is being set up as a re-employment account to help dislocated workers," the official said. "This will help people make a quick return to work and give them incentives to do so."

The AFL-CIO on Monday decried the plan to eliminate stock dividends, saying the proposal showed that Bush and the rich "have declared war on the working people and the poor of this country." Several administration and Senate Republican sources estimate that it could mean a 10 percent increase in the value of stocks.

North Carolina Sen. John Edwards, who announced last week that he will seek the Democratic presidential nomination for 2004, said Sunday that from what he read Bush was "trying to pull a fast one … trying to use the Bush recession to put money in the pockets of the richest Americans over a long period of time while providing very little help for regular people."

Fleischer said that "roughly 70 million Americans" own stock and that more than "35 million Americans have dividend income." According to Fleischer "half of all American households … own stock through either pensions, 401(k) plans or other accounts."

But a wide range of economists doubt the president's plan, even beyond the dividend issue, will be of much immediate help to the economy. "It is a tax reduction package, not a stimulus package," argued Stan Collender, the managing director of the Fleishman-Hillard's Federal Budget Consulting Group.

He said that though 70 million people hold stock, vast numbers of them hold it in tax-deferred programs and will be unaffected by the dividend measure. "Most of the people who receive significant dividends from stock are likely to be what the critics say: rich," he said.

Fleischer gave reporters a series of estimated tax cuts for different demographic groups. He said the figure for the 92 million Americans was a compilation formed by estimating the impact of all of the different types of cuts.

But Collender and others claim that many of president's tax cuts may not have sufficient impact to lift the economy. "We've had two tax cuts and the economy is still struggling."

The White House claims that the recovery is under way, but other economists and business figures claim that 2003 may still be rocky.

The acceleration of the 2001 tax cuts will drive up the federal budget deficit. A congressional budget office estimate suggests it could send the deficit in 2003 to $250 billion. It was $158 billion in 2002.

But the impact of Bush's plan and other costs facing the government could have a far greater effect, Collender and others argue. One imponderable is the cost of a war with Iraq. In September, Bush's main economic adviser, Lawrence Lindsay, estimated the war could cost as much as $200 billion. Lindsay resigned under fire from the administration in December, in part, some suggest, because of making public that estimate. Last month, Mitch Daniels, who heads the Office of Management and Budget, estimated the war cost at $50 billion.

Collender said the estimates are "meaningless because the administration has not disclosed what it's counting as a war cost, how long the war would last and what allies or others would contribute." He said in the first Gulf War, the military was able to hold down new costs because it used billions it had on hand for training as well as payments from Saudi Arabia to offset new expenditures.

He said a "worst-case scenario" could see budget deficits in the $500 billion range if the war took too long, the economy failed to respond to the stimulus package and states needed greater federal payments to offset their already shaky budgets.

If the budget deficit skyrockets, it would drive up interest rates because the government will have to borrow to pay for the war. An increase in interest will deter businesses from investing in expansion, Collender pointed out.

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(With reporting by Marcella S. Kreiter from Chicago)

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