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Europe digests Bush stimulus plan
LONDON, England (CNN) -- U.S. President George W. Bush's has unveiled a new economic plan that should benefit Asian exporters -- but would have a limited impact on Europe, market watchers say. The plan calls for eliminating taxes on stock dividends and creating $3,000 payments to help unemployed people find new jobs, the White House has said. Bush provided details of the stimulus plan in a speech in Chicago on Tuesday. The White House estimates the plan will cost $670 billion over 10 years. (Full story) "The key thing is to make sure the consumer doesn't start flagging," Mike Lenhoff, chief strategist at Brewin Dolphin Securities in London, told CNN. "If the price is right the consumer will keep spending, sucking in imports from China and Asia. That will help corporate profitability and the stocks markets there. "But Mr. Producer in Germany should be worried because the euro has appreciated, making his goods more expensive in the U.S. "Asian currencies are linked to the U.S. dollar, like the Hong Kong dollar. So if the U.S. dollar declines so does the Hong Kong dollar -- keeping its products competitive." Lenhoff said: "You won't see the small investor rushing back into the market, but institutional investors certainly will benefit from end of tax on stock dividends. "You may also see overseas investors reallocating money for the U.S. markets." About half of the plan's $670 billion price tag will go toward eliminating the tax on dividends -- an idea some opposition congressional Democrats say is a gift to the rich. In brief comments to reporters Monday, Bush dismissed such criticism. "The critics haven't seen the plan," Bush said. "This is a plan that provides tax relief to the working citizens. It is a plan that is a very fair plan. It is a plan that recognizes when somebody has more of their own money, they are likely to spend it, which creates more jobs." House Democrats have announced their own one-year, $136 billion package, which they say will have a more immediate effect. "What we've done is design a package that is front-loaded and fast-acting, deliberately," Rep. John Spratt, a Democrat from South Carolina, said at a news conference. (Full story) With Republicans controlling the House, the Democratic plan is unlikely to win approval, but it will serve as a foil to the White House proposal. The competing plans set the stage for a debate in Congress over how best to stimulate the economy, and that battle will likely foreshadow campaign themes sure to emerge in the 2004 presidential race. Bush's plan includes a $3,000 incentive for the jobless to find work. The unemployed will be able to use the money for job training, child care and moving expenses and would keep any balance if they find a job within 13 weeks of becoming eligible. The White House put the cost of the scheme, which will cover 1.2 million people and will be administered by states, at $3.6 billion. Administration officials cast these "personal re-employment accounts" as an innovative way to help unemployed Americans find work -- and said letting people keep the balance if they find work quickly would be an incentive to intensify their job searches. Ending taxes on dividends is the most dramatic step in the president's proposal. Administration officials say the Bush plan includes tax breaks for businesses and individuals, including write-offs for businesses that purchase certain equipment. (Full story) The package, sources said, would also increase the child tax credit, decrease the so-called "marriage penalty" tax, direct more federal aid to needy states and extend unemployment benefits, which lapsed last month after Congress failed to approve an extension. "The overall number is that 92 million taxpayers would receive on average a tax cut of $1,083 in 2003, based on everything the president will propose tomorrow," White House spokesman Ari Fleischer said. The administration hopes that cutting dividend taxes would promote investment and spur growth. Bush also said the tax on dividends is "unfair" because the government is already taxing corporate profits, which are then sent back to shareholders in the form of dividends. Americans with higher incomes would benefit more from a cut in the tax on dividend income because they invest more in stocks and bonds. Figures from the Internal Revenue Service (IRS) illustrate that point. About 15 million tax returns with an adjusted gross income of less than $50,000 reported dividend income last year, totaling $26.9 billion, according to IRS figures. About 10 million returns for earnings between $50,000 and $100,000 reported $27.1 billion in dividend income. The 4.8 million returns with adjusted gross incomes between $100,000 and $200,000 reported dividends totaling $23.8 billion, and the 200,000 filers with more than $1 million in adjusted gross income reported dividends totaling $25.4 billion, the IRS says. Fleischer said tax cuts should go to people who pay the bulk of the taxes. "Very often, critics of tax relief described everybody as rich in an effort to stop tax relief," he said. "I think that's been an old tactic by people who wanted to raise taxes on the American people in the first place." CNN White House correspondents John King and Suzanne Malveaux and Capitol Hill producer Ted Barrett contributed to this report.
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