May 7, 2003

Moderator
Good afternoon. Welcome to "Ask the White House." Mr. Friedman is running a bit late, but will be here soon to answer your questions. Feel free to submit a question at any time.

Steve Friedman
Sorry I am late. As you know, the U.S. economy is growing, but not fast enough to create the jobs that we need. That's why the President has proposed his jobs and growth plan. I'd love to chat with you about it.

Todd, from Dayton, Ohio writes:
How can we afford tax cuts when we have a deficit?

Steve Friedman
The President is concerned about deficits and believes that it is important to return to balanced budgets and budget surpluses. The best way to balance the budget is to grow our economy and control spending in Washington. Economic growth results in budget surpluses – not the other way around. The President's top priorities are winning the war on terrorism and protecting Americans' economic security.

Stephen, from Orlando, FL writes:
Please explain to me, how I can properly explain how the President tax cut is going to benefit the suffering Orlando tourism economy to non-believers.

Steve Friedman
A strong and growing economy will benefit all sectors and all regions of the country. If people have more of their own money to spend, recreational consumption should strengthen also.

Margie, from Mississippi writes:
Because of the resistance to Bushs total tax cut package, do you think those in the upper tax bracket will realize any tax relief?

Steve Friedman
Upper tax brackets are very heavily small and medium-sized business owners, the engines of job creation. Many small business owners run their businesses as Subchapter S companies, limited partnerships, or sole proprietorships, and are thus taxed at individual income tax rates. In essence, the top tax rates are small business tax rates. I think Congress appreciates the importance of these job creators, and will accelerate all of the rates enacted in the 2001 tax law.

Kim, from Western Kentucky writes:
I heard Senator Daschle discuss a proposal by the Democrats that he claims will produce 1 million new jobs, while the Presidents proposal will only produce 600,000 new jobs. Can you explain the basic differences between the proposal by the Democrats and the one put forth by the President?

Steve Friedman
The Council of Economic Advisers projects that the President's proposal would create 1.4 million jobs by the end of 2004. Congress is looking at a smaller proposal, which would create a million new jobs by the end of 2004. The President's proposal contained permanent changes to law, rather than one-time rebates. Families are much more likely to change their consumption patterns when they see a permanent change in their income, instead of a temporary change. Of great importance, businesses are much more likely to make hiring decisions and capital spending decisions to support consumption from a permanent tax policy change, as opposed to what they perceive as a temporary spurt.

Greg, from San Francisco writes:
Hi-- In a speech recently George Bush said we shouldnt look at the dollar amount of the tax cut plan, but the number of jobs it will create. He says it will create one million jobs. The tax cut is 550 billion. Thats 550,000 per job. How do you justify that? Thanks, Greg

Steve Friedman
The $550 billion number is a total over ten years, and the million new jobs would be created in the next 18 months, so the time periods are not comparable. Most importantly, we are not "spending" $550 billion, we are proposing to allow people to keep more of their own money. So, in addition to creating more jobs, personal savings and financial well-being will also go up.

David, from Shernoff writes:
Most people I know are skeptical about the stimulus value of the Presidents proposed tax cuts. Theyd be willing to back the cuts if they had a persuasive reason to believe in them. What can you say to such skeptics?

Steve Friedman
Much of the debate has focused on the dividend part of the President's proposal, overlooking the stimulative effect of the income tax changes.

The acceleration of the income tax rate cuts, the marriage penalty relief, and the increase in the child credit would all mean more money in consumers' pockets immediately. The increase in the child credit would be delivered as a rebate check later this year (up to $400 per child), like the rebate checks delivered in 2001. And the rate cuts would be implemented immediately, by having the Treasury Department change withholding tables. This means that shortly after enactment of the law, you could change the amount withheld from your paycheck.

The investment components of the President's proposal would also have short-term stimulative effects. The tripling of the amount that a small business could expense, from $25,000 to $75,000, should have an immediate impact. The President has met many small business owners in the past few months who have told him they are anxious to take advantage of this provision.

The dividend provision is more complex, but extremely important in terms of stimulating the economy. Firstly, it would put tax savings in more than 30 million households who receive taxable dividends. Secondly, it is well accepted by stock market analysts and economists that passage of this provision would make stocks more valuable than they would otherwise be. We're not in the business of predicting stock prices, but people who are tell us that the band would be approximately 5 to 15 percent higher.

This stock market effect is crucial for two reasons: economists tell us that when their equity valuations are higher, consumers spend a higher proportion of their income. This "wealth effect" bolsters the economy in the short run. Also, stock prices being higher than they would otherwise be lowers corporations' "cost of capital." In other words, it becomes more economical for corporations to spend money on job creating capital additions, new plants, etc.

Additionally, corporate, consumer, and investor confidence are very importantly affected by a healthy stock market. This translates into more job creation and economic growth.

Yvonne, from Chelmsford, England writes:
My 15 month old Scottie MacGregor wondered how old Barney was and what his favorite toy was. How did President Bush come to choose a Scottie.

Steve Friedman
I don't know, but please tell Scottie that I'll ask the President and we'll post later here on whitehouse.gov. I'd ask Barney, but he never wants to talk about dividends.

**Posted at 4:55pm (Eastern Time).**
The answer is Barney was born on September 30, 2000. He's the pup of then-Governor Whitman's Scottie, Coors. (Coors passed away late last year.) Anyway, the President, while he was governor and campaigning, bought Barney for Mrs. Bush for her birthday in November of '00. I'm not sure what his favorite toy is, but he loves playing with a soccer ball on the South Lawn. He's also known to love playing with the mechanical shoe buffer in the East Wing (it's black and fuzzy -- just like him!). If you'd like to see a video of Barney, check out Barney-cam at www.whitehouse.gov/holiday.

Jason, from Lincoln, Nebraska writes:
I am a college student at the Univesity of Nebraska at Lincoln. I have not seen anything in this tax package that would really affect me, a student, who earns less than 20,000 a year. Is there anything in this package that would help students who work while going to college, that I might have missed? thank you

Steve Friedman
A growing economy and more jobs helps everyone. If the economy grows faster and creates jobs, you should see more recruiters on your campus.

Elizabeth, from Atlanta, Georgia writes:
Does the Presidents job growth plan include any trade policy changes?

Steve Friedman
While it is not a part of the jobs and growth package, the President has an aggressive free trade agenda. In fact, yesterday the President was pleased to sign the U.S.-Singapore Free Trade Agreement. From his experience as a Governor, the President has seen the benefits of free trade to prosperity in each partner in a trade relationship.

Greg, from San Francisco writes:
You say small business owners are the engines of job creation, yet many are subchapter S corporations. So a dividend tax break will not affect them. How does a dividend tax break help small business owners?

Steve Friedman
The President's program was targeted to address various important parts of the job and growth creation engine. Subchapter S corporations benefit from the income tax rate changes, which will leave more retained earnings in the owners' hands for expansion.

Also, many small businesses will take advantage of the increase in the small business expensing limits.

Abolishing the double taxation of dividends is a very important part of the growth engine in the President's program. It will help boost the economy and generate more sales for all businesses, including Subchapter S corporations.

Steve Friedman
Thank you for thoughtful questions. I look forward to seeing you next time.

For more information on the President's jobs and growth plan, go to: /economy/.