WASHINGTON: A fierce debate has erupted among economists over whether the stimulus and tax-cut package unveiled overnight by President George W. Bush is the tonic needed for an ailing US economy or simply a giveaway to the rich.
Bush’s “growth and jobs” plan would cost US$674bil over 10 years, with some US$100bil in tax relief in the coming year, according to the White House.
The plan would seek to eliminate tax on company dividends paid to investors and accelerate tax cuts scheduled to take effect in 2004 and 2006 to this year. Administration officials said the package aimed to create 2.1 million jobs in three years.
But critics said the programme failed to live up to its promise of stimulus and could do long-term damage by digging the federal government deeper into deficit.
“It would do little to stimulate the economy in the near term,” said a study by economists Joel Friedman and Robert Greenstein for the Centre on Budget and Policy Priorities, a Washington research group focusing on fiscal policy and issues affecting low- and moderate-income families.
“In addition, its high cost over the next decade and beyond would result in further damage to the federal budget, increasing deficits and thereby reducing national savings and imposing long-term costs on the economy,” the study said.
The economists disputed the Bush administration arguments that dividend tax relief – the largest portion of the plan – was needed because corporate profits were effectively taxed twice. “If it is argued that a portion of corporate dividends are taxed twice, it should be acknowledged that large amounts of corporate profits are not even taxed once.”
The study said the benefits of the dividend tax cuts were skewed to the wealthy, with the top 0.2% of taxpayers getting nearly as much as the bottom 90% combined.
But Harvard University economics professor Gregory Mankiw said arguments that the programme was not stimulative were flawed.
“Any tax cut that puts money into people’s pockets is going to provide a short-term stimulus,” said Mankiw, who has been mentioned as a possible replacement for Glenn Hubbard, chairman of the Council of Economic Advisors.
Added J.P. Morgan Chase economist Jim Glassman: “When the economy is under-performing...nothing can hurt.
“People are getting caught up in a debate over who should benefit.” – AFP
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