Bush Waves Flag For Tax Cuts

President Bush on Thursday defended his $670 billion tax-cutting plan against Democratic-led charges that he is favoring the rich, decrying "the class war of politics" even as a Republican senator voiced opposition.

"It's a fair plan. It's an important plan and it's a plan that will help people find work," Mr. Bush said at a flag-making company in a Virginia suburb of Washington.

But opposition to the president's stimulus package was already being heard – and not just from Democrats. Republican Sen. Lincoln Chafee of Rhode Island announced Thursday that he would oppose the Bush plan.

"I can't see giving away any more of our revenues, which we're doing in tax cuts," Chafee, who voted against last year's tax cuts, told a Capitol news conference.

Congressional aides said there was little or no support for the plan among Democrats in a closed-door caucus on Wednesday. A dozen Democrats defected to Mr. Bush's side two years ago.

White House press secretary Ari Fleischer said some Democrats took a while to come around last time, and could do so again. "If you recall in 2001, Democrats didn't support it in the beginning ... but they emerged there toward the end," Fleischer said.

Meanwhile, Mr. Bush was challenged on the plan's centerpiece — the elimination of dividend taxes — during a round-table discussion with area residents. Don Lucas, a 74-year-old retired accountant, told the president he approved of his overall growth plan but thought the current system of taxing dividends is fair — disagreeing with a central argument the administration is making for proposing the cut. Under the system now, corporations pay taxes on profits, and individuals pay taxes on dividends that the companies distribute.

Yet Lucas also told the president an upside in the dividend tax cut is that it would send more money into the economy by encouraging companies to pay dividends rather than plow cash back into their firms.

Mr. Bush did not respond to the comments by Lucas, who stands to save more than $1,300 if Congress approves the president's plan on dividends.

Kristen Pappano, another round-table participant, said the dividend provision "will help us out immediately."

Mr. Bush himself has termed that provision in part a matter of principle, in which "it's unfair to tax money twice."

The event was designed to promote the White House economic revival plan while surrounding the popular wartime president with American flags — linking Mr. Bush's strongest political strength, his fight against terrorism, to what White House officials believe is his biggest vulnerability, the ailing economy.

"We're fighting a war and the war goes on," Mr. Bush told employees of the National Capital Flag Co. of Alexandria, Va., which provides flags for the presidential limousine.

"There's no doubt in my mind we'll prevail in the war on terrorism no matter how long it takes. And there's no doubt in my mind that if Congress does the right thing, that more of our Americans will have a more hopeful future" in a stronger economy, he said.

The smallest item in the president's 10-year package — at a cost of $16 billion — would allow small businesses like the flag company to write off up to $75,000 worth of new technology, machinery or other equipment, a cap that would be indexed to inflation in future years. Now, businesses can exempt just $25,000.

The White House has estimated that 23 million small business owners would receive an average tax cut in 2003 of $2,042 from that provision.

At a cost of $64 billion, Mr. Bush also wants to accelerate to this year all the individual income tax rate cuts enacted in last year's tax package and scheduled for 2004 and 2006. White House deputy press secretary Claire Buchan said small businesses make up a large share of the individual income tax returns in the top brackets.

The administration's hope is that giving such breaks to entrepreneurs and other smaller companies would lead them to expand, adding jobs in their own shops while boosting the broader economy with their demand for products.

Thursday's event allowed Mr. Bush to focus on portions of the plan that, although making up only 12 percent of the total cost, have some of the potential for stimulating the economy.

Democratic critics are charging that the plan — with its centerpiece elimination of taxes on stock dividends — is a giveaway to the wealthiest Americans with little short-term growth-spurring value.

While the federal government considers tax cuts, many states are looking at raising taxes and Democratic senators say there is a link, reports CBS News Correspondent Bob Fuss. They complain that any package to stimulate the economy must include aid to states, which, unlike the federal government, aren't allowed to run deficits.

Sen. Barbara Boxer, D-Calif., called the president's plan to exempt dividends from taxation "an anti-state provision and an anti-growth provision," because it would lower state tax revenues even more.

"I don't know where he has been living or what he has been reading but our states are hurting and, Mr. President, you are making it worse."

Mr. Bush said Thursday that his overall tax plan would benefit middle-class Americans, citing administration estimates that a family of four making $42,000 a year will receive a 96 percent reduction in its federal tax bill.

"That may not mean a lot of money to some of the big shots," he said. "It means a lot of money to the family of four making $42,000."