The Associated Press

CRAWFORD, Texas - President Bush is putting together an economic stimulus plan likely to raise major objections among Democrats that it is heavily tilted to higher-income taxpayers.

In an effort to pre-empt those arguments, Bush branded such objections as a false effort by opponents to pit different income classes against each other.

"Some would like to turn this into class warfare," he said after giving reporters a tour of his Crawford, Texas, ranch on Thursday. "That's not how I think. I think about the overall economy and how best to help those folks who are looking for work."

While Bush refused to disclose any details of the plan he will unveil in a speech in Chicago next Tuesday, White House officials said that two major components are likely to be an acceleration of personal income tax rate cuts that were included in the 2001 tax bill and a new tax break for investors who get income from corporate dividend payments.

Because higher income individuals, who pay more taxes, get the biggest benefits from rate cuts, the administration had considered not accelerating the scheduled reductions in the top tax rate, currently at 38.6 percent, but instead focus just on the three lower rates. Advertisement

However, this idea prompted a storm of objections from conservative groups and a senior White House official, speaking on condition of anonymity, said late Thursday that Bush had decided against excluding the top rate from any acceleration.

This official, however, said that Bush still had not made the final decision to go ahead with an acceleration in the rate cuts. The next rate cuts are not scheduled to go into effect until 2004 and 2006.

The other key component of the president's plan is expected to be a reduction in taxes paid on corporate dividend payments, a long cherished goal of conservatives.

However, in a bow to arguments that these payments flow primarily to higher-income Americans, the administration is considering limiting the amount of the tax reduction in this area to far less than the total elimination of dividend taxes that many conservatives would like to see.

One option is exempting the first $1,000 in dividends from taxes, which would have the benefit of making stock purchases more attractive to middle-income Americans while not providing a huge windfall to the wealthiest investors with vast stock holdings.

Even with modifications, Bush's plan when it is unveiled is likely to differ drastically from Democratic proposals.

Sen. Max Baucus, the top Democrat on the Senate Finance Committee, last month put out his own $160 billion stimulus proposal. Baucus would provide a one-time $300 tax cut for individuals and $75 billion in block grants to cash-strapped states.

In a signal that Bush will have to compromise on whatever plan he puts forward next week, Republican Sen. Charles Grassley, the incoming chairman of the Senate Finance Committee, said that any proposal will need bipartisan support "given the realities of working in a closely divided Senate."

For that reason, some analysts said Bush may opt to include some tax breaks that would have appeal for Democrats, such as accelerating increases in the child tax credit or planned reductions in the so-called marriage penalty imposed on two-earner couples.

Those changes were included in the massive $1.35 trillion tax cut Bush got Congress to pass in 2001, but they are not scheduled to become fully effective until later in this decade.

However, supply side Republicans are warning the administration that it should not stray too far from reductions in marginal tax rates and business tax breaks, which they believe do the best job of stimulating economic growth.

"There is no question that the left will try to drag out the pagan god of class warfare and say this is just a sop to the president's rich friends," said Daniel Mitchell, an economist at the conservative Heritage Foundation. "The purpose of making these changes is to get more investment into the economy and create more jobs. That's what really matters."

In addition to accelerating rate cuts and reducing taxes on corporate dividend payments, the president was also considering including an expanded tax break for businesses to encourage more capital investment and possibly making a down-payment in fixing problems in the alternative minimum tax. The AMT was originally intended to make sure the wealthy did not escape paying some income taxes but is now hitting more and more middle-income taxpayers.

Bush's entire stimulus package is expected to cost $300 billion over a 10-year period.