US President George W. Bush's tax-cut plan is aimed at driving up US consumer spending over 10 years rather than reviving business investment right away, said US Commerce Secretary Don Evans.
"This is not a policy or a package to try to get the economy going just tomorrow morning," Evans said in an interview yesterday. "This is about creating the right conditions for economic growth and job creation for years to come."
Democrats and some Republicans say Bush's US$670 billion tax-cut proposal is tilted to the wealthiest taxpayers, and does too little to boost the economy this year. Policy-makers and Wall Street economists have said reversing a two-year decline in business investment is central to recovering from a recession that began in March 2001 and probably ended a year ago.
"There are some in the corporate world that don't have the confidence to expand like they should be expanding," Bush said yesterday as he promoted the tax-cut plan at a flag-making factory in Alexandria, Virginia.
The president's plan won't directly boost such investment, Evans said. Instead, it is designed to put more money in consumers' hands and let companies decide when demand has risen enough to justify building factories or hiring workers, he said.
"I'm not going to try and forecast exactly when investment spending may kick up to levels that people think are robust," Evans said.
Bush's proposal, announced on Tuesday, would eliminate the tax on dividends paid to investors and speed income-tax reductions slated to take effect between now and 2010.
One criticism of the plan is that it does nothing directly to spur spending by corporations on structures, equipment and software, which has dropped for eight consecutive quarters.
Business investment was lower in the third quarter of last year than at any time in four years, and the sustained decline in spending is the longest since World War II.
James Glassman, senior economist at J.P. Morgan Chase in New York, said investment might indirectly grow under Bush's plan.
"You could argue that this is not really designed to jam the maximum money up front and get an immediate impact," he said.
Still, "the faster they can speed the recovery, the stronger investment spending will be," he said.
Some congressional Democrats say waiting for consumer demand to transform into rising corporate spending is the wrong approach.
"Any action plan to get our economy moving again must focus on reviving business investment," said Senator Joe Lieberman, a Connecticut Democrat and possible presidential candidate in 2004.
Lieberman has called for a short-term stimulus plan that includes tax credits for companies that buy computers and equipment.
Glenn Hubbard, chairman of the White House Council of Economic Advisers, had said in a Nov. 15 speech that "only with robust business investment will labor markets firm and the economy return to robust job creation."
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