By John Byczkowski
The Cincinnati Enquirer

INFOGRAPHIC

• How Bush's plan could affect your taxes

If it wasn't for the prospect of war, President Bush would have told Congress Tuesday how much better the economy is since he took office.

"The fundamentals are very strong," said David Huether, chief economist for the National Association of Manufacturers in Washington, D.C. "Productivity is very high. Real income growth has been very strong. Interest rates are low."

But the prospect of war "is a definite drag right now," a major reason why businesses aren't hiring and investing, Huether said.

Nevertheless, Bush again Tuesday proposed eliminating taxes on dividends and accelerating the phasing-in of some of the tax breaks Congress approved last year.

The plan isn't popular among many Americans, however, with a recent CBS News/New York Times survey finding that half the country doesn't approve of Bush's handling of the economy.

"I think the dividend cut is misdirected in terms of stimulating the economy because it doesn't affect people in the lower to middle part of the population," Tom Flautt, an Anderson Township retiree, said. "He's not doing the right thing for getting people spending money again and creating jobs again."

Some economists question how much stimulus is really needed, because they say the economy really isn't in such bad shape. The United States emerged from a short, shallow recession in 2001 into a tepid, jobless expansion. Many fundamentals of the economy are strong, but other factors remain weak, and those are the ones making headlines, they say.

It'd be easier to see if not for imminent war. "There's no doubt in my mind, just as it did in 1990 and 1991, that dark cloud has eroded business confidence and consumer confidence and is standing in the way a more normal recovery," said Kenneth Mayland, an independent economist in Cleveland. "The thing that George Bush has to fight - and it's an uphill fight - is to get people to buy into the notion that the economy is recovering."

Mayland said the problem is that this recovery and expansion aren't like past business cycles. Most recessions are deep, followed by strong, across-the-board rebounds. "That's the old model," he said. "The new model is that the economy sees a very modest 1 percent pullback, followed by only a 3 or 4 percent rebound.

"In an economy growing 3 or 4 percent, some indicators are pointing upwards, and some are wavering. The ones that are wavering create the doubt and the talk of double dips."

And the one indicator that's wavering is unemployment: The unemployment rate in December was 6 percent, compared to 4.2 percent in January 2001, when Bush was inaugurated. Today, there are 1.7 million more people unemployed.

Manufacturing has been particularly hard hit, Huether said. Manufacturing output was down 8 percent at the depths of the recession in 2001. Output is improving, but employment isn't, he said.

Resolving the conflict with Iraq would take the lid off growth.

"In 1991, when we very quickly put the war behind us, consumer and business confidence rebounded, consumer spending rebounded, the stock prices rebounded, oil prices fell, and bond yields rose, which is a good thing," Mayland said. "Money was coming out of hiding."

That doesn't mean a stimulus package isn't needed. But Mayland said a big stimulus package isn't necessary.

"If the economy is showing growth - maybe unsatisfying, but it's growth - you need a small stimulus package." He said he favors one geared toward investment tax credits.

Huether said his group favors a package similar to what the president has proposed - one geared to improving long-term growth.

"It's not a shot in the arm for one quarter. Business won't respond to a short-term package," he said.

E-mail johnb@enquirer.com.