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Wednesday, 20 March, 2002, 19:32 GMT
Bush tax-cut plan challenges Democrats
US President George W Bush
Bush says the US economy is not yet out of the woods

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by David Schepp
BBC News Online's North America business reporter

In what some are calling an election-year volley, US President George W Bush has called for additional tax cuts as a way to ensure an economic recovery.

Saying the "economy is not out of the woods yet", Mr Bush challenged Congress to pass a $117bn (82bn), 10-year plan that would repeal estate taxes and promote small business.

The call comes less than a year after Mr Bush signed a controversial $1.35 trillion tax cut in June.

In a series of speeches aimed at challenging Democrats' reluctance to pass further tax cuts, Mr Bush touted policies he believes will promote job creation and simplify the US tax code - particularly for small businesses.

The president's plan
Elimination of estate taxes
Greater allowances for business expenses
Lower deductibles for Medical Savings Accounts (MSAs)
Pooling of health insurance among small businesses

Mr Bush's plan, however, faces stiff opposition in the Democratically controlled Senate.

Several Democratic senators have said further tax cuts would only worsen the federal budget deficit and threaten the stability of the federal government's pension scheme, known as Social Security.

Promoting change

"The president keeps digging the hole deeper and deeper," said North Dakota Senator Kent Conrad, who heads up the Senate Budget Committee.

"Every dime of the president's new tax cuts would be paid for using Social Security trust fund money," Mr Conrad said.

Still, Mr Bush is eager to stimulate job growth during an election year that may tip the balance of power in the Senate toward Republicans.

Mr Bush has accused Democrats, who control the Senate, of dragging their feet in passing further tax relief as well as trade-promotion authority (TPA) that would make trade deals not subject to Congressional revision.

The president has also been busy promoting changes in the tax code to enable smaller businesses to write-off expenses related to expansion and purchases for new machinery.

Pooling healthcare

Mr Bush's proposal would allow, for example, small businesses to deduct up to $40,000 in capital expenses, those costs associated with new machinery and other large purchases.

The White House estimates the greater allowance would reduce tax receipts by $7bn over 10 years.

The president is also looking for ways to reduce healthcare costs for smaller businesses, which sometimes have difficulty affording medical insurance for employees.

To that end the president has proposed revisions to existing tax-free accounts used for medical expenses by employees. The changes would reduce deductibles and eliminate the cap on the number of Medical Savings Accounts (MSAs).

Another plan would allow small businesses to pool healthcare coverage as a way to reduce costs and expand coverage. This has the support of the National Federation of Independent Businesses.

Simplifying taxes

Another topic near and dear to Republican hearts is the phasing out of estate taxes, referred to by detractors as the "death tax", which Mr Bush has also come out strongly in support of abolishing.

The issue is of particular interest to smaller, family businesses that sometimes face stiff tariffs when an enterprise changes generations due to death.

The White House scheme calls for estate taxes to be permanently repealed, which would result in a loss to the US Treasury of $104bn over 10 years.

Under current tax law, estate taxes are due to disappear in 2010 only to return in 2011 under tax laws that preceded Mr Bush's tax cut.

Other parts of the president's package include simplifying taxes for small businesses and a broadening of the federal government's contracting policy to promote the use of small business.

See also:

04 Feb 02 | Business
Budget debate looks to elections
06 Jan 02 | Business
Bush will defend tax cuts 'to death'
05 Oct 01 | Business
Bush pushes for more tax cuts
06 Sep 01 | Business
US Democrats push for new budget
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