The up to $600-billion economic plan President George W. Bush is set to unveil this week may sound impressively big, but even those economists who like the idea say it may pack little immediate punch. While the details remain sketchy, the package Bush is to launch in Chicago on Tuesday received a lukewarm reception at the annual convention of the American Economic Association in Washington this weekend. During one panel discussion, Fordham University economist George Von Furstenberg drew applause after he criticised the Bush administration for not paying enough heed to the impact his tax cuts will have on the budget deficit. The President is expected to propose a combination of individual and business tax cuts to give the economy a boost. Yet at the same panel, economist Allen Sinai of Decision Economics Inc agreed with economists who thought fiscal measures were worthwhile given the anaemic state of the US economy. “We’ll get an extra half percentage to three-quarters of a percentage point of growth a year out of it,” Sinai said of possible proposals in the $600-billion range. He said while that was not a huge amount, “I think it’s worth the cost.” The package will include more than $300 billion in tax cuts. Key components include slashing tax on corporate dividends to shareholders, faster income rate cuts, and incentives for business spending. Aid to states and more jobless benefits may also be part of the plan, about which the White House has declined to comment. The annual convention of academic economists coincides with gatherings of affiliated groups such as the Allied Social Science Association and draws about 8,500 attendees. It’s a chance to network and exchange opinions for economic experts from across the country and further afield. On the Bush proposal, those opinions were decidedly mixed. Treasury Under Secretary John Taylor, who attended many of the sessions, was mum on details of the plan but took issue with critics who have faulted Bush’s tax-cutting for bloating the deficit. He said that Bush’s earlier $1.35 trillion tax cut, passed in 2001, worked in concert with monetary policy to blunt the impact of the 2001 recession and its sluggish aftermath. While it grew throughout 2002, the economy has been trapped in a halting recovery and businesses have yet to start investing heavily in equipment and buildings. Still, another attendee, Jeffrey Madrick, said Bush would do better to emphasise government spending over tax cuts, as the expenditures would add juice to the economy more quickly. “They (taxpayers) don’t spend all that money. If the federal government spends the money right away, that money goes immediately and fairly fully into the economy and probably multiplies its effects,” said author and columnist Madrick. He said tax cuts aimed at the wealthy might do little to spur growth because higher-income people would be more likely to stash the money away in a savings account. “If there are going to be tax cuts, let’s give them to middle and lower income (people) because they will spend more of it,” he said. The stimulative effect of reducing the tax burden on dividends was also subject to debate. “Interest rates are already pretty low. The economy’s not expected to pick up much appreciably in the future. It’s not clear there would be a big impact on investment, at least immediately,” said William Osterberg, visiting professor of economics and finance at the University of Wyoming. (Reuters)
