/www.bloomberg.com/ By Alex Canizares
Washington, -- President George W. Bush's tax-cut proposal would boost U.S. stock prices by about 10 percent, with much of the economic stimulus coming in late 2003 and in 2004, Bush's economic adviser Glenn Hubbard said.
Hubbard, chairman of the White House Council of Economic Advisers, said in an interview that ``asset prices will rise'' as a result of Bush's plan to eliminate the double taxation of corporate dividends, the centerpiece of a $674 billion, 10-year proposal Bush offered today.
The proposal would boost U.S. gross domestic product by 0.4 percentage point in 2003 and 1 percent in 2004, Hubbard said. ``The reason it's smaller this year is because we assume it won't take effect until the third quarter,'' he said. ``This is about job creation and getting the economy going.''
Hubbard's comments echo Bush's remarks introducing the plan in Chicago, saying it was designed for both short-term stimulus and long-term growth. Bush is trying to strengthen an economy that probably grew at an annual rate of 1.5 percent in the final three months of last year, according to the median of 71 forecasts in a Bloomberg News survey last month. That's about a third the average of the 4 percent annual growth rate of 1996-2000.
Bush's proposal would accelerate tax cuts enacted in 2001 and slated to take effect between now and 2010, increase tax breaks for small businesses, and aid state governments.
Fairness Issue
Eliminating taxation of dividends for individuals would cost the economy $20 billion this year and $364 billion over 10 years, according to the Treasury. Currently, corporations pay tax on their income and then individuals are taxed when they receive dividends from a company.
Bush saw canceling the double-taxation as a matter of fairness, Hubbard said. ``Currently we have a tax structure that's biased,'' he said. Canceling individual taxes on dividends would lower the cost of capital investments for U.S. companies, Hubbard said. ``Asset prices will also rise,'' he said.
The White House faces a fight in Congress, where Democrats and Republicans such as Senator John McCain of Arizona have said Bush's plan is too heavily tilted toward the wealthy.
Hubbard said although wealthier taxpayers would receive a larger dollar amount of tax cuts than middle- or lower-income earners, high earners' share of the U.S. tax burden would effectively go up as a result of all the tax changes. The Treasury will produce a distribution table to show the impact on different income levels, he said.