Democrats deride Bush's £420bn tax-cuts plan

President George Bush has urged Congress to move swiftly to enact his sweeping $674bn (£420bn) tax-cut plan, including abolition of dividend taxes for investors and income tax cuts that the White House claims will be worth $1,100 to every taxpayer.

The recent recession had been "one of the shortest and shallowest in US history", Mr Bush told the Economic Club of Chicago yesterday. "But we have more work to do, to remove the obstacles to economic growth."

The President's plan is an attempt to shore up the faltering economy and boost his prospects of re-election next year. He presented the initiative, whose size was doubled in the past week, as a move to help ordinary Americans, and create jobs. "The need for this plan is urgent," he said. "The moment to cut taxes is now. The sooner Congress acts, the sooner the relief will come."

The key components are an end to dividend taxes, worth $300bn over 10 years, and the acceleration to this year of income and other tax cuts planned for 2004 and 2006. America's 92 million taxpayers "will be given back an average $1,083 of their own money, real money, for 2003". Mr Bush said.

Other measures include higher childcare tax credits, moves to reduce the so-called "marriage penalty" for two-income households, an extension of unemployment benefits, and steps to boost investment by small businesses. But even before the plan with its focus on helping shareholders was released, it was assailed by Democrats as mere pandering to the rich. They say the proposals will do little to stimulate economic growth or improve the lot of ordinary Americans, but recklessly increase the federal budget deficit. Mr Bush defended the dividend tax move as "the abolition of double taxation", which would benefit everyone.

On Capitol Hill, Democratic leaders proposed a single-year $130bn package focusing on a six-month extension of unemployment benefits, a one-off tax rebate of $300 for each working citizen, and $31bn of aid to cash-strapped states. "The President thinks only about the stock market," one senior Democrat said. "We're trying to do something for the job market."

Senator Bill Frist of Tennessee attended his maiden session as Senate Republican leader yesterday, replacing Trent Lott, who was forced to step down in a furore over racist remarks. "As a physician, as someone who has dealt with thousands and thousands of Medicare patients one-on-one ... We are going to strengthen Medicare," Senator Frist told ABC News yesterday before the congressional session. "Health care, prescription drugs, the uninsured, healthcare disparities, to reach out to make sure that health care is delivered both to minorities and non-minorities in an equal way ­ those are the sorts of things you can see on the agenda this year that you might not have seen otherwise," he said.

Given Republican control of the Senate and House of Representatives, the Democratic proposals are little more than propaganda. But Mr Bush's scheme faces a tough battle ­ especially in the Senate, where the Republican majority is just 51-49 ­ and whatever final version does emerge may look very different.

At least he can say he is acting on the economy, and he can blame Democrat obstructionism if the plan founders on Capitol Hill. He wants to avoid the fate of his father, who drove Saddam Hussein from Kuwait in 1991, only to be defeated by Bill Clinton 18 months later, largely because voters felt he had ignored the recession. A dozen years on, circumstances are not dissimilar. US growth in the next year may not exceed 2002's expected 2.5 per cent, and could be less if the crisis with Iraq turns out badly.

A further problem is the financial plight of the states. New figures yesterday put their combined budget deficits this year at $90bn, almost 1 per cent of GDP. California is worst off with a $35bn shortfall.