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 Tuesday, 28 January, 2003, 21:52 GMT
Bush economic plan in trouble
John Snow,  US Treasury Secretary designate
Mr Snow will have to sell the tax cut plan to Congress

President Bush's economic plan, the keynote of his domestic agenda, was already in trouble ahead of his State of the Union address on Tuesday.

At the confirmation hearings for the newly nominated Secretary of the Treasury, John Snow, Republican as well as Democratic Senators expressed their scepticism that the plan would deliver the economic growth the US economy needs.

President George W Bush
President Bush will address the nation on Tuesday night
With polls showing that most of the American people think the economy is a more important issue than the crisis in Iraq, the president must be seen to deliver on his economic plan as the election season approaches.

The failure to win Senate approval would be a serious setback for Mr Bush and his new Treasury Secretary.

Snow on defensive

The amiable Mr Snow - the former boss of the giant rail company CSX - made a favourable impression on the committee and appears to have little difficulty in gaining confirmation - despite his hundreds of millions of dollars in stock options.

But he found it harder to sell the president's tax plan, which involves abolishing the taxation of dividends paid on stocks, at a cost of $672bn over 10 years.

He said that the plan was "an investment in the American people and their future" and that he would not rest until everyone who wanted a job had one.

The administration says that its tax cut plan will create 500,000 jobs by next autumn and 1.5 million jobs by autumn 2004.

But Mr Snow admitted that the plan would only work if people believed that they would be better off in the future, and altered their spending on that basis.

He accepted that the main rationale behind the plan was to fix an anomaly in the tax system, that would have long-term rather than short-term benefits for the economy, as companies shifted from debt to equity finance.

But Republican Senator Olympia Snowe asked the Treasury Secretary about the timing of the tax cuts, and how many people it would reach, suggesting that she supported a tax cut that delivered more immediate benefits this year.

And Democrats suggested that the Republican Congressman who heads the House committee that will look at the tax bill, Bill Thomas, questions the wisdom of the dividend tax cuts at this time.

Some reports also suggest that the influential chairman of the US central bank, Alan Greenspan, who backed the last tax cut, also has his doubts.

Deficit issues

Democrat Senators also questioned Mr Snow about the effects of the tax plan on the growing Federal budget deficit, which is expected to reach $300bn this year.

In the 1980s, Mr Snow had led business efforts to reduce the budget deficit as part of a lobby group.

And he insisted at the hearing that he was still concerned about the size of the deficit, and ensuring its sustainability over the long-term.

But he insisted that the current level was sustainable, and said that the fact that long-term interest rates were so low was a demonstration of the fact that the financial markets were not worried by the deficit.

Mr Snow also said that he was not worried by the size of the US current account deficit - which reached a record $400bn last year - although he "would keep it under close watch."

Class warfare

Democrats also argued with Mr Snow about the distributional impact of the Budget, with Mr Snow saying that the average family of four on $40,000 a year would gain $1,100 in their pockets.

But Democratic Senator Kent Conrad said that millionaires would gain a tax break of $88,000 per year, while the median household would only get $253 per year.

President Bush has said that Democrats should not play class warfare with his tax plan, and concentrate instead of what would stimulate jobs and growth.

But with the economy in recession, and fears about an Iraq war depressing the stock market, President Bush's tax cut plan is going to be a much harder sell to Congress this time than the previous $1.3 trillion tax cut passed in 2001.

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28 Jan 03 | Americas
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