WASHINGTON - President Bush proposed a bold and expensive package of tax cuts yesterday that is intended to spur growth and create jobs but would likely swell budget deficits for the foreseeable future.
Easing the tax burden on investors, small-business owners and ordinary families, Bush argued, would energize the economy. He said his plan would hand consumers more money to spend and encourage businesses to hire more workers.
But many economists reacted skeptically to the proposal, which is projected to cost $674 billion over 10 years, far more than was expected as recently as last week.
They said that besides raising deficits, Bush's plan would probably offer little immediate benefit to the sluggish economy. Democrats charged the package was tilted to favor the wealthy.
Nevertheless, in a speech in Chicago, Bush said, "These tax reductions will bring real and immediate benefits to middle-income Americans," adding, "This growth and jobs package is essential in the short run."
The centerpiece of the plan is the elimination of taxes on corporate dividends paid to shareholders. At an estimated cost of $364 billion, this provision is the largest item of the package.
The president also called for an acceleration of all the income-tax rate reductions from the $1.3 trillion tax cut of 2001. Those tax cuts would take effect this year rather than, as scheduled, over the next several years. And Bush wants the rate cuts to be made permanent, rather than expire after a decade.
The president's plan includes other provisions, including an increase in the child tax credit, from $600 to $1,000, for 34 million families and up to $3,000 each for some unemployed workers to help pay costs involved in finding a job.
He would also expand the 10 percent income tax bracket - the lowest - to ease the load on some lower-income Americans.
But contrary to some expectations, the Bush plan would offer no money for state governments facing huge financial burdens.
The package is sure to set off intense debate between the two parties in Congress. With most Democrats sharply opposed to it and fiscal conservatives from both parties concerned about growing deficits, the Bush plan faces major obstacles.
Though Republicans control both chambers, they must compromise with Democrats to pass any economic plan. That means some of Bush's tax-cut provisions could be dropped or scaled back.
The scope of Bush's proposal took even many conservatives by surprise.
Only weeks ago, the White House seemed to be considering more modest ways to give the economy a quick jolt. But Bush settled on a far more ambitious and costly approach, the results of which might not be fully evident for years.
Some economists and other analysts said Bush's decision carries political risk. Had Bush focused on smaller tax cuts and policies to help the unemployed find jobs, they said, Democrats might have supported him.
Instead, Bush unveiled a package of deeper, permanent tax cuts that might produce little short-term relief and that Democrats are sure to use to accuse him of favoring the rich and sending the budget into deficit. The huge costs associated with a possible war in Iraq could further strain the economy.
Sen. Joseph I. Lieberman, a Connecticut Democrat who is expected to seek the presidency in 2004, called Bush's plan "an irresponsible, ineffective, ideologically driven wish list that is oblivious to the particular problems our faltering economy is facing."
Like many other Democrats, Lieberman favors a cheaper, more modest plan that would offer incentives to businesses to hire workers and tax relief for the lowest-paid Americans.
'A shot in the foot'
Senate Democratic leader Tom Daschle called Bush's program "a misguided plan reflective of this administration's misplaced priorities."
"I think it will give the economy a shot in the foot," Daschle said tartly.
Alan Auerbach, a professor of tax policy at the University of California-Berkeley, said the president was promoting a worthy - if debatable - plan for a sustained economic recovery in the long run. But he said the plan would do little to stimulate the economy quickly, even though the president is trying to sell it on that basis.
"This is not a stimulus," Auerbach said. "This is a long-run measure that is not without its problems, but is worth thinking about. Now the White House could portray it like that. But then, people would ask, 'Why are you doing this now?'"
White House aides, meanwhile, tried to back the president's point that he was offering an immediate jolt to the economy, saying his plan would create an estimated 2.1 million jobs over the next three years.
In saying Bush's plan would deliver a short-term stimulus, the White House is relying on assumptions that are not universally accepted by economists. For example, by abolishing the tax on corporate dividends paid to shareholders, the White House estimates that 35 million investors would end up with more money and that they would spend it, infusing $20 billion more into the economy this year alone.
But investors who receive the bulk of corporate dividends are typically wealthy and, unlike lower-income Americans, tend not to buy more goods if they have slightly more money.
Administration officials and conservatives also argue that the elimination of taxes on dividends will boost the stock market, putting more money into investors' hands and causing them to spend more.
Some economists, though, see scant evidence that a stock market surge raises consumer spending much, noting that the market slide has not had the opposite effect of significantly reducing consumer spending.
Since the Republicans swept to victory in the November elections, Bush has brimmed with confidence, and he appeared to want to offer a broad economic agenda that would help him maintain full control of the domestic agenda.
Meanwhile, the president and his allies brushed aside charges that his plan was a boon for the wealthiest Americans, pointing out ways that middle-class Americans would also benefit but not denying that the rich would receive the biggest boost.
"No matter what the plan was, Democrats would chant and protest," said Stephen Moore, president of the conservative Club for Growth. "The president is taking head-on this class-warfare crowd in the Democratic Party and has decided on a bold pro-growth expansion plan."
Deficit worries
Yet there are signs that Bush won't have as easy a time pushing through new tax cuts as he did in 2001, when a handful of moderate Democrats came on board to support his tax-cut package. This time, even some Republicans, such as Sens. Olympia J. Snowe of Maine and John McCain of Arizona, have expressed concern that Bush's plan could be too costly.
"At a time of growing federal deficits, it is especially important that this plan be right-sized - without putting our future at risk," Snowe said yesterday.
Whether or not Congress approves Bush's economic package in anything like its current form, he faces pressure to show Americans he is keenly sensitive to the hardships brought by the recent recession. He learned a lesson from his father about how paying scant attention to the economic woes of ordinary people can help doom a presidency.
Originally, Bush planned to cut dividend taxes by 50 percent. Under current law, corporations pay taxes on dividends, then shareholders also pay taxes when the dividends are distributed.
"It's fair to tax a company's profits," he said. "It's not fair to double-tax by taxing the shareholder on the same profits.
Daniel Mitchell, a tax economist at the conservative Heritage Foundation, said Bush's plan is made stronger by his call for a total elimination of the dividend tax on shareholders.
Cut on principle
"If you go with a 50 percent reduction, it sounds like you're creating some special preference," he said. "But now, you're fighting on behalf of a principle, defended not only on economic grounds but moral grounds."
Only Monday, when Democrats were already charging that Bush's plan heavily favored the rich, Bush decided to propose "re-employment accounts" that could offer up to $3,000 to unemployed workers to help defray job-hunting costs. If a person found a job within 13 weeks, he or she could keep whatever money remained in the account.
Jeffrey Wenger, a labor economist at the non-partisan Economic Policy Institute, said pilot re-employment account programs have been tried out in a few states, in response to complaints that standard unemployment insurance serves as an incentive to remain jobless.
Wenger said that "there is really mixed evidence that these accounts have any real impact."
Staff writer Julie Hirschfeld Davis contributed to this article.