U.S. President George Bush today announced a new program of tax cuts that he says will help boost the struggling U.S. economy.

The stimulus package includes tax relief for about 92 million Americans, cuts that were originally planned to take place in 2004 and 2006.

BMO Nesbitt Burns says that Bush’s plan may not actually stimulate the economy, but it is a good thing nonetheless.

“President Bush unveiled a US$670 billion economic stimulus plan today that is far bolder than proposals under consideration only a week ago,” says BMO Nesbitt’s chief economist, Dr. Sherry Cooper. “With this action, the White House hopes to counter Democratic criticism that he has done too little to boost the economy. He also responds to conservatives’ calls for aggressive action.”

However, BMO notes that it should be emphasized that there is little prospect of this plan’s passage in total. Unlike the Canadian system, “the U.S. system sees this as just the opening salvo in a prolonged budgetary debate. The President would be lucky to see a watered down version of his proposal enacted by the mid-April tax date.”

Cooper says that many have suggested that proposal doesn’t do enough to stimulate economic activity this year. She says, “I contend that more is not needed. The U.S. economy is already poised for an economic recovery, thanks to low interest rates and a coming rebound in corporate earnings.”

“Whatever mix of fiscal measures are enacted this year will be icing on the cake. Too much icing ruins the cake. What this does do is improve investor, business and consumer confidence. That immeasurable is extremely positive,” she declares.

The plan would eliminate all taxes paid on corporate dividends received by shareholders. It would immediately implement all income tax cuts planned as far forward as 2006. It would boost the child tax credit by US$400 and accelerate tax relief for married couples. Also, the package includes US$3.6 billion for cash-strapped states to begin offering “personal re-employment accounts”, which would allow states to give certain unemployed workers up to US$3,000 for training, child care, moving and transportation to help them get back to work. The package would boost the tax write-off for new business investment on equipment by small businesses.

Meantime, the Democrats have unveiled their own competing plan. Cooper says that the debate over this initiative will be heated and many will likely break ranks. “This makes the issue less contentious for Finance Minister Manley who is already constrained by government spending increases for health care, defence and more. He has promised to balance the Canadian federal budget without raising taxes. Tax cuts in Canada this year are just not in the cards,” she concludes.

http://www.bmonb.com/Economics/bottomline/common/line_b.asp?issue=20030107