WASHINGTON – Lowering tax on stock dividends, accelerating tax rate reductions and providing more tax breaks for business investment are emerging as top possibilities for inclusion in the Bush administration's new economic stimulus package.
While administration officials insist the president has made no final decisions, Republican staffers in Congress and business lobbyists who have met with the White House say the outlines of the proposal are beginning to take form.
These officials, who spoke on condition of anonymity, said they believe the president will recommend reducing the tax investors must pay on their stock dividends, long a Republican goal, as a way to give a boost to the sagging stock market.
This may be done by returning to the dividend exclusions in effect in the mid-1980s which exempted the first $200 in dividend payments for an individual or $400 for a couple from federal income taxes. If the administration goes with this approach, it would likely recommend increasing those amounts to reflect inflation.
Congressional staffers and business lobbyists also expect to see the president asking Congress to accelerate the next round of income tax rate reductions by having them become effective next year rather than waiting until 2004 as called for in the 2001 tax law.
In addition, the president's package is expected to include increased incentives to get businesses to start spending again on capital investments. This may take the form of increasing the bonus depreciation from 30 percent, as passed in a stimulus measure last March, to 50 percent along with a separate proposal to boost the investment incentive provided to small businesses.
The administration insists that Bush has made no final decisions on what measures will be included in the economic stimulus package he will present to Congress next month.
"The president has tasked his economic advisers to look at a broad array of ideas and that is what is happening now,'' said Trent Duffy, spokesman for the Office of Management and Budget.
There certainly has been no shortage of advice on ways the administration should proceed.
A variety of business groups have found a receptive audience on their main point that new tax cuts are urgently needed to stimulate consumer demand and bolster the listless recovery. Unemployment last month climbed back to an eight-year high of 6 percent even as the Federal Reserve slashed interest rates to a four-decade low.
"The Fed rate cuts have not proven to be enough for an economy that is still searching for some momentum,'' said Bruce Josten, chief lobbyist for the U.S. Chamber of Commerce. "Business investment remains weak and job growth has yet to materialize.''
The Business Round-table, which represents the biggest corporations in America, is urging the president and Congress to approve a payroll tax holiday, exempting the first $10,000 in wages next year from the Social Security payroll tax.
This change, while putting more money in all workers' pockets, would especially benefit millions of low income workers who don't pay incomes taxes but must pay a 6.25 percent payroll tax for Social Security.
But the administration, reportedly seeking a plan that would cost around $300 billion over a decade, has not embraced the payroll tax holiday, which could cost $129 billion for just one year. Small businesses have also complained about added costs and complications in administering such a program.
However, Democrats are already complaining that the administration's favored options are heavily weighted toward tax relief for higher income individuals and corporations.
Senate Democratic leader Tom Daschle on Monday accused the administration of preparing a "secret plan for tax cuts for the wealthiest by raising taxes on middle- and lower-income working families.''
White House officials said that charge was based on an erroneous interpretation of remarks by Glenn Hubbard, chairman of the president's Council of Economic Advisers.
Hubbard said last week in a speech that the top 1 percent of Americans in earnings pay 37 percent of total income taxes, up from 17 percent of the total three decades ago. He said this heavy concentration was making it more difficult to reform the system because fewer workers had a stake in the outcome.
White House spokeswoman Claire Buchan said it was wrong to contend that the administration had any secret plan to raise taxes on low income Americans. She said Bush's position was clear that he believes all Americans are paying too much in taxes.