|The White House
President George W. Bush
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For Immediate Release
Office of the Press Secretary
January 7, 2003
Background Briefing on the Growth and Jobs Plan
Aboard Air Force One
En route Chicago, Illinois
11:30 A.M. EST
MR. FLEISCHER: All right. Good morning. I'll begin on the record, and then we are joined by two senior administration officials who are here to answer questions you may have as well. You have the material we've distributed, including the fact sheet that describes the proposal on several pages, and then the one-pager that has the cost and the brief description.
The President will make his remarks to the Economic Club of Chicago, which was organized in 1927. For 70 years, the Economic Club has worked to foster the development of civic-minded executives who seek to help build a better, more productive society. The President's remarks today will be in front of 2,200 invited guests.
I want to talk to you today about a couple things before I turn to questions. Let me go over the process by which the President made the decisions today, and then a couple other things. One, much of the discussions that the President had that led to today's announcement began in the summer of 2002. The President has been monitoring the economy very closely throughout his presidency. And during the summer, the President started talking to his advisors about whether or not an additional package was going to be necessary to give additional boost to the economy.
As you know, the economy was in recession and we had a growth period in 2002, the attack of September 11th, of course, gave a set-back to the recovery. So the President was always worried about the possibility of a jobless recovery, the impact of the economy on those who were searching for jobs, and the need to have more growth.
During the summer, a 50 percent dividend exclusion was discussed, such issues as additional bonus depreciation was reviewed, acceleration of tax cuts. These were among the issues that were in the mix. The key meeting point really took place in November of 2002, in the Roosevelt Room. The President convened a meeting of his economic team where they had a wide-ranging discussion about what substantive actions would do the most good to boost the economy both short-term and, more fundamentally, for the long-term. And it was as a result of that November meeting that this became a $600 billion proposal that included a 100 percent exclusion of the dividends. It was that meeting that led to that presidential decision.
Q Do you know the exact date of that?
MR. FLEISCHER: I have it back at the office. Shortly before Thanksgiving.
Q Ari, ou're being careful with your words --
MR. FLEISCHER: Let me keep going, then I'll come back to questions.
Then, throughout the Christmas period -- and one of our senior administration officials can get into this -- additional calls and discussions took place that put the finishing and final touches on the proposal. The President made some of the final decisions yesterday. And that's what led to today's announcement. The final decision the President made yesterday dealt with the reemployment package.
Two other things I just want to point out, then I want to open one thing up for one of the senior administration officials, then we'll take questions.
The Council for Economic Advisors has studied this and concluded that 2.1 million jobs will be created over a three year period as a result of these policies. The final important piece that may be falling into place -- and the President urges Congress to make it fall into place beginning today -- is unemployment insurance.
The President has dispatched Department of Labor officials and congressional affairs officials to both the House side and the Senate side to meet with Democrats and Republicans. The meetings began yesterday, they are continuing as we speak today, to get an agreement on unemployment insurance.
The President calls on the Congress to finish this so he can sign an unemployment insurance bill on Thursday, so the states will not have any interruption in delivering unemployment checks to those who are most in need. There are a series of promising discussions underway on Capitol Hill as we speak. The President is hopeful and is committed to working with House and Senate Republican and Democrat leaders alike so an agreement can be reached so the Senate today can vote on a package that all support, and will be signed into law.
The discussions have been encouraging and it's important for the unemployed that they come to fruition.
Let me turn to a senior administration official just to talk about one other aspect dealing with corporate governance, and then we'll take your questions.
SENIOR ADMINISTRATION OFFICIAL: One of the things that we think should be very positive about abolishing double taxation is it will eliminate what for decades has been considered by economists and scholars to be a distortion in our capital market financing structures.
This, by the way, has been economists of Republicans, Democrats. I believe Jimmy Carter even proposed eliminating double taxation back in the '70s. And in terms of governance, there is no intent to prejudice the system in favor of divident payers as opposed to corporations that will use retained earnings for growth. The intention is really to eliminate a bias in the system, which may bias corporations towards borrowing because the interest on the borrowing is tax deductable, whereas dividends are taxed twice.
One of the things that it will we hope and think do for governance, back in the '90s, and the late '90s in particular, you saw an awful lot of emphasis -- in my view, great over-emphasis -- on bookkeeping manufactured earnings. And we've all seen that the cost of some of these manufactured earnings, where companies might do long-term derivatives and estimate future profits.
Well, there's a saying in business, that profit is an opinion but cash is a fact. And by putting the focus on cash, stockholders will know this is real. If the company pays them a dividend, they have a check in their hands and that's real.
Also over time, it should lead to a better allocation of capital in the system so that capital flows to the places where it will have the highest return, create the most jobs and so on. This is not strictly governance. But in the first instance, you think of the benefit of this as being for the individual who gets the tax who gets the dividend without paying a tax. And very heavily those are seniors.
But when you think about it, they take that money and they don't put it under their mattress; it gets invested someplace. And that leads to greater capital stock, which is the fancy economist term. But it really is more technology. It gives workers better tools.
And so even though it's the investor who actually sends the check, mails the check to the IRS, workers have a big stake in this because with better tools and better productivity, they'll get better wages. So that's why this has been something that economists of all shades have thought for a long time was a very valuable change in our tax policy.
Q You seem to be choosing your words carefully about that meeting, so that we'll jump to the conclusion that in November the President had decided to eliminate dividends and the program would be $600 billion. Can you tell us precisely because, as you know, there has been some reporting recently that it would be as low as $300 billion and the dividends would be cut, if not eliminated.
Precisely when did the President decide it's going to be at least $600 billion and the dividends will be eliminated, not cut?
MR. FLEISCHER: Really, that meeting led to the decision, and the decision was made, Ron, it's for all the people who are most closely involved in this package, we were always puzzled why we were seeing stories that said $300 billion or 50 percent exclusion, because what the President shared with us was after that meeting that he had made a decision that he wanted to do what, in his judgment, would do the most good for long-term fundamentals. And the advice he received from his team at that point was it makes more sense to do a 100 percent exclusion than a 50 percent exclusion that would be combined with something else, such as bonus depreciation.
So it was really shortly thereafter. I don't have a hard date. I cannot give you a hard date, because it was a process. But it was shortly after that meeting, certainly in early December.
Q So you're saying by early December, the President decided $600 billion and eliminating stock dividends?
MR. FLEISCHER: There's no question. Because the President didn't make a decision on numbers, the President made a decision on policy. The policy added up to the $600 billion or so, $674 billion is the precise number.
What the President decided was that he wanted to think big and do the most good. And that's why he decided to totally eliminate taxation of dividends. If it was the wrong thing to do, 50 percent of it was still 50 percent wrong.
He also wanted to accelerate the income tax rates for all categories, marriage penalty, child credit, et cetera. So those were the decisions the President made, to do the most good, to create the most stimulus, to give the economy the biggest boost. But his decisions added up to the numbers that are being announced today.
Q So the reporting in recent days, just to be totally clear, that the decision to accelerate the rate cuts, even at the top brackets, and to eliminate the dividend tax altogether, that the reporting that indicated that that came sort of in the last week was incorrect reporting?
MR. FLEISCHER: That's incorrect reporting, yes. I think it could have been attributable to people downtown who did not know, having been attributable to sources perhaps on the Hill who did not know. But it is -- that is the process. That's why I wanted to lay it out.
Q -- knocked that down, though, earlier? Why not just say that 300 number is not correct?
MR. FLEISCHER: As soon as people started putting on the front page of the papers $300 billion on Friday, that's exactly what Dan Bartlett and I did, That's why $600 billion showed up Saturday.
Q -- longer than that, though. That was out days ahead of that.
MR. FLEISCHER: I think this is always where it's Catch-22. Our job here is to be helpful, but our job is also to let the President make the news. I think the real issue is -- I can't speak for why incorrect information is reported.
Q But, Ari, can you help out with there was supposed to be a package for states. You've announced in this package a $3.6 billion in unemployment. People on the Hill said you were going to propose a $10 billion grant package. What happened to that? Is that going to be in there?
MR. FLEISCHER: Again, you said there was supposed to be. I don't know what that means.
Q So there is no $10 billion --
MR. FLEISCHER: There were people -- people who rumored it to be true. It was not true.
MR. FLEISCHER: The President made the decision that he wanted to enact policies that would give the most boost to stimulate the economy and to provide direct help to those who are uninsured. The President when he reviewed a variety of options that were available to him -- bonus depreciation was another -- when he reviewed all these options, his conclusion was transferring tax dollars from one taxpayer to another taxpayer, or in other words from the government -- one government to another government was a tax transfer, it did not have a stimulative effect. And the purpose of the program he's announcing today is to increase consumer spending, to give a boost to the economy, and to help the uninsured -- unemployed.
Q Might there be an aid to states announced in the State of the Union or in the budget? Is that something that's under consideration, just not part of the stimulus?
MR. FLEISCHER: Well, I'm not going to speculate about any future announcements.
Q You're aware of the Democratic arguments that this is a -- the dividend mechanism is a benefit to the rich. The Federal Reserve and the IRS have lots of statistics about how the vast majority of people who earn stock dividends -- even senior citizens -- have incomes of $75,000 a year or higher. Does the President believe people making $75,000 a year are in the middle class?
MR. FLEISCHER: Okay, let's get into statistics wars -- because I dispute those statistics.
Q And actually, let me refine the question. Can you give us a breakdown income group by income group about who gets dividends and how much they're likely to gain by this? Do you have that kind of breakdown?
MR. FLEISCHER: Ask the question again.
Q Either seniors or the population as a whole, people making -- how many people making $30,000 to $50,000 a year; or how many households making $30,000 to $50,000 are getting benefit from the dividend change? How many $50,000 to $75,000? How many $75,000? You see where I'm going?
MR. FLEISCHER: Let me see. I don't know if we have that one. But let me start, and then let me try to get specific. Number one, the President does not believe in punishing people because they are successful. The President believes that all taxpayers are over-taxed, and we are all in this together. The President does not believe in dividing the American people and playing class warfare. The President wants to give a boost to the economy. And the President wants to help all in our society.
Two, on the statistics: out of the 28 million taxpayers 65 and older in 2003, 9.8 million receive dividends. Thirty-five percent of those who are 65 and older receive dividend income. Of the 12.6 million taxpayers 65 and older with income over $15,000, 58 percent receive dividends. Of the --
Q Hold up. So over 12,000 --
MR. FLEISCHER: Twelve point six million taxpayers 65 and older with income over $15,000 a year, 58 percent of them receive dividends. There are 8.2 million taxpayers 65 and older with income over $30,000 a year, 66 percent of them receive dividends. So clearly, the number of seniors receiving dividends goes down far lower on the income scale. And I think that should be fairly obvious. A lot of seniors are retired. They don't have income from a job. What they have, typically, are stocks that they've held an awful long time. Many of those stocks are older line manufacturing companies that do typically pay dividend income.
Q How much of those dividends are already protected by tax-free accounts such as 401(k)'s and --
MR. FLEISCHER: Obviously, if you're 65 and older and you have a distribution from a 401(k) it's a taxable transaction.
Q Pardon me?
MR. FLEISCHER: If you're 65 and older and you have a distribution from a 401(k) it's a taxable transaction.
Q Ari, you just suggested that --
SENIOR ADMINISTRATION OFFICIAL: -- increased, though -- if the corporation chooses to increase the dividend, even the person who holds it through the 401(k) will get a direct benefit.
Q Can you explain why in the paper you talk about $20 billion boost from the dividend tax cut? How do you get a $20 billion injection into the economy from the dividend tax cut? What is that? Is that capital gains? Is that --
SENIOR ADMINISTRATION OFFICIAL: That's the deductability of dividends. Twenty billion dollars of dividend payments received will be deducted from people's income taxes.
Q Okay, so not the injection. Just -- that's just --
SENIOR ADMINISTRATION OFFICIAL: Right.
Q Ari, are you suggesting --
MR. FLEISCHER: Let me give you a couple more statistics to lay this out to you. This is from the Department of Treasury: Americans who make more than $82,000 a year pay 81 percent of income taxes in America. Americans who make $49,800 a year or more -- between $49,800 a year and $82,000 pay 15 percent of all taxes in America -- income taxes in America. So in other words, Americans who make more than $49,862 a year, pay 96.1 percent of all income taxes in America. These are the people who shoulder the greatest tax burden under the current law.
People who make less than $30,964 a year, pay approximately 5 percent of all income taxes in America. So just so people understand that is where the current law rests the tax burden.
Q You suggested that the President made decisions on the policy, it's not on the numbers, but at some point the $600 billion figure was presented to him. Do you know when in the sort of November-to-now period that was? And given the fact that there was a menu of options presented to him, was there ever along with that a menu of cost options that people thought were appropriate or did whatever the price tag was, was going to be the price tag if the policy was right?
MR. FLEISCHER: Well, last summer when the administration was looking at the 50 percent exclusion, there was, of course, a cost estimate of the 50 percent exclusion. And you could compare that to a cost of 100 percent. So those options were looked at. But the President made the decision that -- again, there's a right and wrong issue here, as well. If it's wrong to have double taxation, it's wrong to any level of double taxation, whether it's 50 percent or 100 percent.
Q Ari, how important is it for you all that this package appear to target middle income and working class and not the rich? Is that -- obviously, your strategy stresses the benefits of the folks down the scale. But the bulk of this money is going to end up in upper income hands, is it not?
MR. FLEISCHER: The package aids the country because it stimulates the economy, and we're all in this together. And people who are at the lower end of an income scale who pay no income taxes want a growing economy, so they can have a job. So the President views this as the best way to create growth that creates jobs to help one and all.
And he views us as one country. He believes that everybody wants to make it in America. And simply because you make it in America is no reason to get punished. And he will work with Democrats and Republicans alike to help everyone in our society, and not divide and punish people because they're successful.
Q Yesterday you said that Bush aims for this package to help restore the U.S. economy to sustainable pace of growth. Can you tell us if this package is going to do it, and what rate we're talking about -- is 3 percent what we're aiming for with this package?
MR. FLEISCHER: I've not heard the President define a level of growth with a number. I think the President views it as low unemployment, opportunities for all Americans who seek work to find work, for people to move up the economic ladder of America, which is one reason why I think the country looks at proposals like this and they don't engage in some of these same arguments that people in Washington do.
The American people want to make it in America. They want to climb the economic ladder of life. They're not interested in having the rungs ahead of them torn down. They want to climb those rungs. And the President believes and hopes that this package will lead to higher growth.
Clearly the economy is in recovery. He wants it to recover faster and he wants it to recover more.
Q Do you think Democrats are -- who are criticizing the plan based on its distribution among the wealthy to the poor, that they're engaging in class warfare?
MR. FLEISCHER: Some are, some aren't. Obviously, 12 Democrats in the Senate in 2001 voted for the income tax rate cuts, the marriage penalty, et cetera. I think there are deep divides in the Democratic party about what to do on tax policy. I think that there are -- there is no one Democratic alternative to this proposal. There's no one Democrat plan. There are many competing plans. I suspect as events of 2003 -- and certainly in 2004 -- move forward, you'll see even more competing Democratic plans.
Q Do you have any estimate of what the budget deficit is going to look like now in 2003 if this happens?
MR. FLEISCHER: I don't know that this -- I haven't seen a new estimate. Of course, it would be contained in the budget, with all the complete deficit estimates. The President believes that this ultimately will help reduce the deficit because it will lead to higher growth.
Q Ari, some people have suggested that this package was sort of -- you know, it's big, it's ambitious, but it's also sort of a starting point from which you have a lot of room to negotiate from. What do you say to that?
MR. FLEISCHER: Well, the President made this proposal because he believes in it and he would like to see it enacted into law. This is the beginning of a process. The President will of course work with Democrats and Republicans in Congress so that we can get something done for the country.
Q Some Republicans want to propose a capital gains tax cut to be added on in the House. Is that something that the administration would favor?
MR. FLEISCHER: Well, I think it's fairly certain that there are going to be some people, mostly in the Republican party, who think this package is too small, and there will be others in the Democratic party, largely, who think it's too big. The President still wants to work with everybody to get something done.
Q One last question on the re-employment initiative. You suggested that the President only signed off on that yesterday. Was that sort of a new idea that came to him sort of late afterwards?
SENIOR ADMINISTRATION OFFICIAL: No, that's an idea that we've been talking about all along. He had some questions about how it worked. And he had us go back, develop some good, solid answers to those questions and come back to him and explain it. And once he got those answers, he was ready to make a final decision.
Q You don't want to tell us what the questions were.
MR. FLEISCHER: No.
Q But that happened yesterday. That was one decision that definitively happened yesterday.
MR. FLEISCHER: That happened yesterday. It is new thinking about how to help the unemployed. There is a Catch 22 in social policy, by definition, because you want to give people help to get them back up on their own feet, but you don't want to make the help permanent, so people don't have an incentive to get back on their own feet.
This new re-employment package tries to address a classic issue of social policy, which is how to deliver social policy that does good that doesn't create a dependency. And in our times of economic softness, it led to new thinking, new ways to get things done. And it will be interesting to watch reaction from both Democrats and Republicans alike to how this new policy works. The President hopes people will receive it with open ears and an open mind. He welcomes a discussion and debate about it.
But this is -- it's important to have new thinking, as ideas are moved forward. Lots of things in the tax debate are well known. But this does represent some new thinking.
Q What do you say to states that were really hoping they would get a lot more? They were counting on getting billions of dollars in grants or aid, something -- what do you say to those states?
MR. FLEISCHER: Again, the goal of the package was to stimulate the economy, not transfer money from one taxpayer funded source in the government to another taxpayer funded source in a different government.
Q Any congressional folks traveling with him today?
MR. FLEISCHER: Senator Fitzgerald is aboard.
Q Are your comments on the record or on background?
MR. FLEISCHER: My comments are all on the record.
Q Were state grants -- grants for states ever considered?
MR. FLEISCHER: There were a series of options that were looked at. State grants were one of the options at one point.
Q Is there anything you'd -- that he rule out at this point that he's not going to consider as part of this package?
MR. FLEISCHER: This is the beginning of the process. The President wants to make his announcement. He hopes people will listen to it before they criticize it. And he'll look forward to working with people.
Q But are there any definite non-starters, as far as you guys are concerned?
MR. FLEISCHER: The President's approach is, let the process begin, and let's listen to good ideas and work together. But the President is going to lead, drive and advocate and push to get this package enacted into law.
Q Thank you very much.
MR. FLEISCHER: Thanks, everybody.
END 11:55 A.M. EST