FROM THE OFFICE OF PUBLIC AFFAIRS

Good afternoon.  Thank you, Governor Schweiker for that kind introduction.

This is my second week on the job as Treasury Secretary, and Philadelphia is one of my first stops on the road, talking to people about the state of our economy and President Bush’s economic growth plan, which promises to create jobs, accelerate our economic recovery, and increase our growth in the years to come.  I think it’s the right medicine at the right time, and his plan will do a lot for the people of the state of Pennsylvania.

As every American knows by now – whether from losing a job, from feeling the fear that comes when your job is insecure, or from knowing someone who has lost a job – our economy took a turn for the worse beginning in the summer of 2000.  By the time President Bush took office, an undercurrent was running against the economy.  The unprovoked and unprecedented terrorist attacks of September 11, 2001 compounded a recession that was well underway, and the discovery of serious abuses by some corporate business leaders slowed our recovery from it. 

In response to this convergence of adverse events, President Bush led decisively.  Acting with Congress, he took the steps necessary to protect a shaken nation and a fragile economy.  In 2001, when relief was needed, he signed the most sweeping tax relief in a generation.  As evidence of the damage became clearer, he acted again in March 2002 to further bolster the economy.  The timing was perfect.  These actions made the recession shorter and shallower than it would have been.  In fact, by most measures it was the mildest since World War II.
 
In the face of extreme adversity, our economy, like our nation, remains resilient.  Despite an economic slowdown, attacks on our homeland, war in Afghanistan, and weakened investor confidence, the economy is recovering.  But as the President has stated, we can and must do better.  Too many Americans are out of work today, and too many Americans feel uncertainty about tomorrow.
 
We must build on the proven strengths of our economy.  We must continue to move toward policies that enable the private sector to invest in more good jobs that raise living standards for all.  As long as there are Americans who want jobs and can’t find them, the economy is not growing fast enough.   That’s why President Bush’s jobs and growth package is so important. 

Let me describe the package in a little more detail. 

The President’s growth plan is especially favorable to working families.  The 10% tax rate bracket will immediately expand to help the lowest income earners keep more of their pay.  The marriage penalty will end once and for all, and the child credit will increase to $1,000 per child immediately – double its level in the year 2000. 

The President’s plan will also accelerate the tax cuts approved in 2001, to accelerate economic benefits for the American people.   

For the unemployed, the President’s growth plan offers considerable assistance, extending existing unemployment benefits, and creating new personal re-employment accounts.  Re-employment accounts grant unemployed workers up to $3,000 to use toward the expense of finding a new job, such as moving costs, child care, training and transportation.

The President’s plan also helps businesses create the new jobs that workers are looking for.  For one, the plan offers tax relief to small businesses that invest in our future.  The plan will triple the amount of equipment that small businesses can deduct rather than depreciate, which adds incentive for entrepreneurs to invest now.  More investment now means more jobs, and sooner.

But the key job creation provision of the President’s plan is the elimination of the double taxation of dividends.  Companies pay dividends to their shareholders to attract equity investment, which allows the companies to expand their businesses and create new jobs.  Dividends provide investors with an incentive to invest in American companies, American products and services and in the American worker.  Yet today, our tax laws discourage that investment and job creation, and needlessly penalize all those investors -- especially seniors -- by taxing dividends twice.  The company pays taxes on its profits, and when it pays out those profits to shareholders as a dividend, the same earnings get taxed again as income.

Most American would agree that double taxation is unfair.  It is also bad policy.  The net effect of double taxation of dividends is that the American economy grows more slowly than it should, because it is more costly than it needs to be for businesses to expand and invest. 

And double taxation hits seniors the hardest.  Of the 17 million seniors we expect will file tax returns in 2003, 9 million – over half – have taxable dividend income. In fact, seniors receive over half of all taxable dividends.  It doesn’t seem right to put a higher tax burden on folks who have already contributed most of a lifetime to this country.

This double taxation is unfair, counter-productive and damaging to our economy.  Double taxation makes it doubly difficult for companies to hire new workers, for hardworking taxpayers to save for their retirements, and for the economy to grow and create jobs.  For every dollar a business sends to Washington in taxes, it is one less dollar used to hire a new employee, develop a new product or invest in the future.  For every dollar an individual taxpayer sends to Washington in the form of a dividend tax, it’s one less dollar to invest in a business or save for the future.

Under the President’s plan, corporations will still be taxed on their profits, but when they pay out their profits as dividends, shareholders will not be taxed on that income a second time.  We think that is fair.  It is also smart.  And the way we have written the plan, it will encourage companies to pay the taxes that they owe, because they can only pay tax-free dividends when they pay taxes on their profits. 

Under the President's proposal, 92 million taxpayers and their families would receive a tax cut in 2003.  A typical family of four with two earners making a combined $39,000 will receive a total of $1,100 in tax relief, compared to 2002 – not just this year, but in every year after.  And the plan will create jobs.  The Treasury Department estimates that by the end of next year, the Presidents growth plan will create over 1.5 million new jobs, with much of that coming from the elimination of dividend double taxation.

The President and his economic team have given this plan a lot of thought.  Our goal was to do something now that would pay off for America long into the future – not here today, gone tomorrow.  The package will not only help America return to its economic potential, it will increase it, creating a more abundant future with more good jobs and rising real wages.  I believe that is what everyone in this room and across America seeks. 

Now, I know not everyone agrees with me, and a lot of Americans still have questions about the President’s plan.  I spent most of my first week on the job testifying to Congress, and while I was up on the hill, I heard some reasonable question about the President’s plan.  Let me take those head-on.

First, I was asked about the federal budget deficit.  Yes, in the short term, the President’s plan would increase the deficit – we would leave more money with the American taxpayers and take less to Washington.  Deficits matter.  They are never welcome.  But there are times, such as these, when they are unavoidable, particularly when we must address critical national needs.  Even without the President’s economic growth and jobs package, improved homeland security, and the war on terrorism, we would still have deficits today from the economic slowdown.  Are these deficits welcome?  No.  Are they understandable?  Yes.

The surpluses we enjoyed were the product of a strong economy, not a weak one.  We will not return to economic strength by taxing our economy when it is struggling.  The prescription for returning to balanced budgets is straightforward: hold the line on government spending and grow the economy.  This is the direction the President has chosen -- a course to create real jobs that last.

We should also remember that current deficits are small relative to our economy as a whole.  Even at their worst, they are expected to remain considerably below the typical levels following other recessions in the last 30 years, and they are expected to improve considerably after next year, as our growth accelerates.

I’ve also been asked how the President’s plan will help states and municipalities.  Some people seem to think the best way to help ailing state budgets is to hook them up to federal life support.  We think the best way is to create an environment that will restore their economic health.  The President’s plan does offer assistance to the unemployed in every state through re-employment accounts, and the President’s budget increases state and local grants-in-aid.  But the most important aspect of this plan is that it will create more, better-paying jobs in your state. 

In Pennsylvania alone, the President’s growth package will reduce income tax bills for over 4 million taxpayers, and over 1 million small businesses will have tax savings to apply toward new jobs and equipment.  More than 3 million married and single filers will benefit from the expanded 10-percent tax bracket.  Over 1.5 million couples will benefit from the elimination of the marriage penalty.  Over 1.1 million parents will benefit from the increased child tax credit, and over 1.4 million taxpayers will gain from the end of double taxation of dividends.

I’ve heard people say that the President’s plan is unfair.  Let’s be real clear about this one.  I already explained that the proposal favors working families because it eliminates the marriage penalty, nearly doubles the child tax credit, and expands the 10 percent rate bracket.  It also favors seniors by ending double-taxation of dividends.
 
Here are the facts: under the President’s plan, taxpayers with income under $30,000 will get an average tax reduction of about 17 percent.  Taxpayers with incomes over $100,000 will get a reduction of about 11 percent. 

Under the President’s plan, families with incomes under $50,000 will pay a smaller share of the total income tax burden than they do today.  Families with incomes over $100,000 will pay a larger share of the total income tax burden than they pay today.  Under this plan, the share of income taxes paid by families with income over $100,000 will rise to 73.3 percent.

I think that’s pretty fair.

Job creation and economic growth are keys not only to our near-term but our long-term success as well.  To the meet the new challenges our nation faces today, and the unexpected threats of tomorrow, we must have a strong economy. 

We must seek a higher level of prosperity for America than we have known – one that puts us on a path to ever-greater growth, one which unlocks the fullest potential and talents of the American people.  That means encouraging hard work, rewarding hard work, and creating the opportunities for all Americans.  These are the values that made America great, and these are the values that should lead us into the future. 
 
President Bush’s Jobs and Growth Package is the right plan at the right time.

Thank you.