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White House Readies Economic Stimulus Package

by Mike Godfrey, Tax-News.com, Washington

09 December 2002


As Washington buzzes with rumours on who will replace Paul O'Neill and Lawrence Lindsey in the President's economic team, the White House is concentrated on readying an economic stimulus plan that will underpin the stuttering economy, seen by the President as the one weakness that could undermine his re-election bid in two years' time.

The package, worth around $300 bn over the next ten years, is expected to consist mostly of a variety of tax cuts, and will focus on incentives for work and investment, but will include tax breaks for middle- and lower-income consumers in order to secure the backing of enough moderate Democrats to ensure passage in the Senate.

The White House apparently thinks that major parts of the package can be paid for by reform to the nation's Medicare system, where spending is mushrooming out of control, but Democrats are unlikely to support any proposals which could reduce the level of care available to poorer families.

The economic-growth package is highly likely to include a reduction in taxes on corporate dividends, either for shareholders or the companies themselves. Double taxation of dividends in the US has long been seen as a brake on corporate investment, and reducing it would likely be at least partly self-financing through increased tax on stock gains and higher corporate profits. More generous depreciation rules for corporations are a possibility, and savings incentives are also on the agenda.

The Democrats' hand in the Senate was slightly strengthened over the weekend when Mary Landrieu just succeeded in being re-elected in Louisiana; the Republican advantage will now be 51:49. The Democrat platform remains that the administration's supply-siders are ignoring the poor while loading up their richer supporters with tax breaks. "We need short-term stimulus for this economy," said Sen. Joseph Lieberman on Fox News Sunday. "That means putting money into the hands of middle-class families, working families."

On the same program, Democrat Senator Jon Corzine talked about a package that would include action to temporarily eliminate payroll taxes as well as dividend taxes. "I think there's actually reason to consider some move with regard to dividends, but it has to be within an overall, comprehensive package, one that also includes breaks for average consumers", he said.


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