Bush unveils tax-cutting package

" By speeding up the income tax cuts, we will speed up the economic recovery and the pace of job creation "
President Bush

The package - expected to be approved by Congress - is worth $674bn (£420bn) over 10 years.

It abolishes tax on stock dividends and brings forward planned cuts in income tax.

The administration said the package could lift stock prices by 10% and would create 2.1 million jobs in three years.

But the Democrats have already dismissed the measures as financially irresponsible and "an illusion" designed to favour the rich.

Speeding up recovery

President Bush announced his plans in a speech to the Economic Club of Chicago.

"We cannot be satisfied until every part of our economy is healthy and vigorous," he said.

He noted the vital role played by consumer spending in the US economy and said "there are warning signs I won't ignore".

"By speeding up the income tax cuts, we will speed up the economic recovery and the pace of job creation.

"If tax relief is good enough for Americans three years from now, it is good enough for Americans today."

News of the economic plan pushed the dollar higher against other major world currencies. US shares moved modestly lower following a substantial rise on Monday.

Package details

The US Treasury said the package was aimed at encouraging consumer spending, promoting investment and helping the unemployed.

The package includes the following measures:

• Taxes paid by shareholders on dividends will be scrapped
• Income tax cuts originally planned for 2004 and 2006 are brought forward to this year, with the reductions retroactive to 1 January
• The 10% tax band will be increased to the first $7,000 of income from $6,000
• The child tax credit will increase from $600 to $1,000 with immediate effect.
• Tax benefits for married couples are to brought forward to this year
• The amount small business can write off against investment in new equipment will rise to $75,000 from $25,000
• About $3.6bn will be given to US states to help the unemployed back to work, including the use of Personal Re-employment Accounts.

The government said the measures would give 92 million taxpayers an average tax cut of $1,083 this year.

But proposals to give $10bn in grants to states, which some had expected, were not included.

"The goal of the package is to stimulate the economy, not transfer money from one taxpayer-funded source in the government to another taxpayer-funded source in a different government," said White House spokesman Ari Fleischer.

Serving the wealthy?

The stimulus package will have to be approved by Congress, both chambers of which are divided, albeit narrowly, in favour of President Bush's Republican party.

" First, there is no stimulus in the Bush stimulus plan, second, it is grossly unfair "
Senate Democratic leader Tom Daschle

Democrats have argued that President Bush is playing on the weak economy in order to introduce tax cuts for the wealthy, despite the potentially high costs of a possible war with Iraq.

Senate Democratic leader Tom Daschle said President Bush's proposal would not work.

"President Bush is proposing a plan that is heavily tilted to the wealthiest Americans, will not provide immediate help to the economy, and will put us $600bn deeper into debt," he said.

"First, there is no stimulus in the Bush stimulus plan. Second, it is grossly unfair."

Other Democrats were as critical.

"The president really is investing... $600bn on an old, old Republican theory of trickle-down economics," said California Democrat George Miller.

"We're saying no. Give it to the people who need it."

The Democrats have said 25% of the proposed dividend tax break would benefit people with income of more than $1m a year while the great majority of America's small shareholders would be better off by less than $50.