Bold Economic Plan Could Produce Less Punch Than Expected

By John S. McClenahen On Jan. 7, a half-hour before President George W. Bush formally announced his plan to strengthen the U.S. economy, a CNN.com poll showed 60% of Americans believed that the $670 billion package would not help them. Whether they're correct remains to be seen -- as does the extent to which a Republican-controlled Congress enacts the White House proposals. Nevertheless, and reflecting both economic and political concerns, the Bush plan is more ambitious -- and more costly in terms of projected revenue loss--than initially anticipated. The proposals include:

  • Ending the so-called double taxation of stock dividends.
  • Allowing small companies to expense -- that is, write off in the first tax year -- up to $75,000 worth of technology, machinery and equipment purchases. Current law permits up to $25,000 to be written-off immediately.
  • Making retroactive to Jan. 1, 2003, the income tax cuts slated to take place between now and 2006.
  • Extending unemployment benefits that expired Dec. 28, 2002, and making them retroactive to that date.
  • Creating Personal Re-Employment Accounts of up to $3,000 per person to help unemployed workers find new jobs. The money could be used for job training, child care, transportation and moving costs. The White House Council of Economic Advisers figures that the Bush plan will help the U.S. generate 2.1 million jobs during the next three years. Predictably, the plan quickly garnered approval from such business groups as the U.S. Chamber of Commerce, the American Gas Association, the National Federation of Independent Business and the National Association of Manufacturers (NAM). "The president has proposed a big, bold plan because that is what is needed to get growth high enough to put people back to work," judges Jerry J. Jasinowski, NAM's president. "We especially appreciate the president's recognition of the loss of manufacturing jobs. The president's proposal will deliver direct aid to displaced workers who have been hardest hit by this [economic] downturn and [will] help them weather the storm." But even if passed by Congress pretty much intact, the plan may not provide much of a short-term economic boost. Preliminarily, Merrill Lynch Co., New York, believes that cash-strapped state and local governments will be a drag on the prospective federal fiscal stimulus. The securities firm's economists foresee the Bush plan producing just a two-tenths percentage point net boost to the economy, making Merrill Lynch's adjusted GDP growth projection for 2003 still a decidedly non-bullish 2.8%.
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