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Some Economists Worried About Increased Deficits From Bush Stimulus Plan - 2003-01-08

President Bush Tuesday unveiled a proposal to stimulate the lagging U.S. economy by cutting taxes. The plan is the president's second huge tax cut proposal in less than two years.

The centerpiece of Mr. Bush's program is the elimination of taxation on dividends the cash that many corporations pay out to their shareholders. Larry Kudlow, an advisor to former President Reagan and the host of a popular business program on television, likes what the president proposes.

"The Bush plan goes right to the heart of the problem," he said. "And it should restore the stock market and the investor class and help businesses to expand. As long as the Federal Reserve keeps the money supply growing as it has been, I think this year could be a boom year in the economy and I think the stock market could rise by about 40 percent this year and next."

But, not surprisingly, opposition Democrats oppose the proposal, saying it benefits the rich and not the middle class. Senator Barbara Boxer voiced her views on the floor of the U.S. Senate. "I've seen the president's plan. In my personal view, and I've looked at where the benefits go, it's a bonanza for the wealthiest in the country, Mr. President. And it's a bust for the middle class. And it's a budget deficit disaster," she said.

The president's plan would reduce government revenue by an estimated $674 billion over the next decade. The tax cuts approved in 2001 are expected to reduce revenue by $1 trillion over a ten-year period.

Jerry Lynch, an economics professor at Purdue University in Indiana, agrees that there is reason to worry about the latest plan's impact on the deficit. "There's no question that this is going to increase the deficit overall," he said. "But the real measure of the government's pressure on the private sector is how much it spends not so much whether it gets its revenue from taxation or through deficit financing."

When President Bush took office two years ago the budget was in surplus. Now, because of recession, tax cuts and an increase in defense spending the budget is in deficit.

Does the president's plan favor the rich? Jerry Lynch says there's not a simple answer. "I wouldn't say it does nothing for the poor. I think one of the things to remember is that the lower 50 percent of the income earners pay practically no income tax. So any kind of an income tax cut is not going to have much impact on them," he said.

The president's proposal will be debated by both houses of Congress over the next few weeks. Final Congressional action is unlikely before April.