Congress Should Spend More, Give $ To States, Says Democrat Economist

By Christine Hall | July 7, 2008 | 8:29pm EDT

( - As Wall Street rallied at the prospect of an expected Bush tax-cut proposal and as some economists forecast an economic upturn, liberal economists and policy analysts are urging congressional Democrats to aggressively promote a plan that gives more tax breaks to states and to poor and middle-class Americans.

"What they (the Bush administration) have before us is mainly a feel-good proposal for the stock market" and good press that produces victory in the 2004 presidential election, said James K. Galbraith, a University of Texas economist, referring to the idea of eliminating the double tax on stock dividends -- the centerpiece of the forthcoming Bush plan.

Little or nothing will emerge from this proposal to address any serious economic problems, namely, excess production capacity and household debt, said Galbraith, who spoke at the Carnegie Endowment for International Peace in Washington on Monday.

"Absent very large increases in federal spending, [the problems] won't go away except over time," said Galbraith. "And they're probably therefore best managed by keeping interest rates low and by moderate tax relief targeted at the incomes of working families and at the promotion of employment."

Bush's plan, to be outlined Tuesday, will include not only a tax cut on dividends but a new federal job-training program and the extension of unemployment benefits.

Galbraith chided fellow Democrats to "get their act together," and he said he was disappointed that they didn't come out stronger for aid to states and localities.

For their part, though, congressional Democrats on Monday did unveil a plan that would included an extension of unemployment benefits but went further by proposing a refundable income tax rebate of up to $300 per person (or $600 per working married couple); doubling a small business deduction for investments, from $25,000 to $50,000; and funneling $31 billion to the states earmarked for homeland security, Medicaid, highway, and unemployment insurance programs.

The Democrats' plan would cost $136 billion in 2002, compared to $600 billion for the first year of Bush's 10-year plan.

Galbraith did praise President Bush's plan for directing $10 million to the states, most of which are facing big budget gaps this year. "Now we can simply argue with them about the relative size" of that aid, he said.

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