Bush Stands Behind Tax Cut Proposal Even as Deficit Projections Worsen Despite President Bush’s best efforts to sell his stimulus package to the American people during his State of the Union address, doubts about the $674 billion proposal continue to mount. Conservative House Ways and Means Chairman Bill Thomas (R-CA) recently joined moderate Republicans in questioning the centerpiece of Bush’s plan, an elimination of taxes on corporate dividends. Current polls show a majority of Americans opposing the dividend tax break as well.

Most of those surveyed said they would rather have more spending on education, health care and Social Security than a tax cut, while a significant majority of respondents said they would prefer that the money be used to balance the federal budget. According to economists, the President’s plan could lead to a budget shortfall in excess of $900 billion, undermining the government’s long-term ability to pay for domestic social programs, including Social Security and Medicare.

Jitters about growing deficits intensified this week when the Congressional Budget Office (CBO) projected deficits of $199 billion this year and $145 billion in 2004 – much larger than those predicted as recently as August. In addition, CBO forecasts a cumulative surplus of $629 billion over the 10-year period beginning in 2003. Just two years ago, the agency projected a $5 trillion surplus over the next decade.

Since CBO’s projections only calculate taxes and spending enacted into law and not current proposals or likely funding increases, the budget forecast is actually bleaker than the agency’s estimates. The CBO estimates do not include the huge costs of Bush’s proposed stimulus package or the expenses of a war with Iraq. When these items are factored in, some economists warn that this year’s deficit could reach a record $300 billion or more.

Democrats blame worsening budget shortfalls, in large part, on the GOP-backed $1.35 trillion tax cut enacted in 2001, and argue that the President’s new tax cut will only push the country further into a hole. In addition to the elimination of dividend taxes, the plan would also accelerate the reduction in the top four income tax rates. Like the dividend tax break, this measure would overwhelmingly favor wealthy Americans. The Bush plan would also accelerate increases to the child tax credit and married couples tax break.

Not only would it contribute to further deficits, but analysts assert that the Bush plan fails as a stimulative tool because it calls for permanent tax breaks rather than immediate, temporary measures designed to jump-start the economy. Furthermore, critics contend that the plan is unfair because it would disproportionately benefit the wealthy. All told, the 80 percent of American households making under $73,000 per year would get less than 10 percent of the new tax breaks President Bush is proposing.

In recent weeks, House and Senate Democrats have put forth their own economic stimulus packages that focus on tax rebates for every American, extended unemployment benefits for laid-off workers, and incentives to spur business investments this year. The Democrats would also provide immediate fiscal relief to the states, many of which are cutting spending on health, education and social services as a result of huge budget shortfalls. In contrast to the Bush proposal, the Democratic plans incur almost all their costs in the current year.

Members of the House and Senate are using the confirmation hearings of Treasury secretary nominee John Snow to begin debating the President’s stimulus proposal. Although the White House is pressing for quick passage of the plan, both Thomas and Senator Chuck Grassley (R-IA), Chairman of the Finance Committee, have yet to endorse it as a whole, and it is unclear how quickly the issue will move through their respective committees. Centrists in both chambers are hoping to develop a compromise proposal of more modest tax cuts, including a scaled-back dividend tax cut.

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