Americans poised for tax holiday

Pete Domenici: "I have not seen a stimulus package that is better"

Americans are set to receive a tax holiday worth up to $43bn, in a drive to promote spending and revive the country's recession-hit economy.

Both Republican and Democrat senators have said they are open to plans to give workers and employers a one-month holiday from social security taxes.

"This country is waiting for action. Further delay could put more Americans and more families at risk.

George W Bush, US president

And White House sources hinted that US President George W Bush would also agree to some kind of break from the tax, which is broadly equivalent to the UK's national insurance, but also helps fund medical care for the elderly.

"There are differences but the differences are not that big," Mr Bush said after meeting Spain's Prime Minister Jose Aznar later on Wednesday.

Deadlock

A one-month holiday would be worth $207 to a worker earning $40,000 a year, and $413 to a self-employed contractor, said Republican senator Pete Domenici, who proposed the scheme.

The plans are an attempt to break a deadlock over an economic stimulus package made more urgent by the events of 11 September.

The Senate, which is narrowly controlled by the Democrats, has been resisting Republican plans for a tax cut that they argue would mainly benefit the rich.

The House of Representatives, controlled by the Republicans, has already approved that plan.

Timing concerns

But, although Democratic leaders have responded positively to the plan, they raised concerns that it would take months to implement.

"If that is the case, I think it lessens our enthusiasm," said Tom Daschle, Democrat leader in the Senate.

Mr Daschle also urged discussion of Democrat plans to boost by $15bn spending on transport, mail and nuclear facilities, as politicians pursue talks on ways to revive the US economy, the world's biggest, from the grips of recession.

Tax disputes

The tax holiday plans are part of a $100bn stimulus package which Democrat and Republican politicians are attempting to agree.

Concerns that reductions in taxation are distributed equally to all should not be the only driving force for future tax reform

OECD

Much debate has centred on whether to aim tax breaks at lower paid workers, an idea espoused by Democrats, or, as Republicans prefer, to spread benefits upwards.

The Organisation of Economic Co-operation and Development on Tuesday urged cuts to the top rates of income and estate taxes.

"Concerns that reductions in taxation are distributed equally to all should not be the only driving force for future tax reform," the OECD said.

Mr Domenici said he had "not seen a stimulus package that is better" than his tax holiday proposal.

Christmas deadline

Mr Bush has urged a rapid agreement of revival measures, as the economy continues to falter.

He on Wednesday renewed calls for Democrat and Republican leaders to settle disputes over the package.

"This country is waiting for action," Mr Bush said.

"Further delay could put more Americans and more families at risk. So let's move. Let's get the job done."

Treasury Secretary Paul O'Neill said after a meeting with Republican senators: "I'm hoping we are going to see something very, very soon.

"The president said by Christmas. I'm hoping we can give him an early Christmas present."

Many economists, including the OECD, argue that tax cuts would complement the cuts in US interest rates aimed at countering the sharp slowdown in the US economy after eight years of steady growth.