Can the tax cuts jumpstart economy?

President Bush has scored a major political victory on tax cuts, but a central question still looms over his signature domestic initiative: Will those cuts boost a flagging economy?

Unlike the first round of Bush tax cuts, this one "front-loads" reductions in income-tax rates, rather than having them kick in gradually. Its $330 billion in 10-year tax cuts is bolstered by $20 billion in aid to state and city governments. Republicans are counting on the package, which could start affecting worker paychecks by July, to improve a job climate that remains stubbornly weak.

Economists agree that the $330 billion deal over 10 years, worked out by House and Senate Republican leaders this week, will provide at least some economic stimulus. But they are more skeptical of the long-term benefits of a package that will also likely boost the federal budget deficit dramatically.

Moreover, even the short-term impact isn't expected to be large. In a $10.6 trillion economy, the question is whether the amount of tax relief scheduled for this year will be "enough to matter," says Bruce Bartlett, a senior fellow at the conservative National Center for Policy Analysis.

President Bush has himself called an earlier $350 billion Senate version "itty-bitty."

Still, Sen. Charles Grassley of Iowa, chairman of the Senate Finance Committee, maintains the package will "pump up our consumer-driven economy. It'll put more money in individuals' and families' pockets. It'll encourage small businesses to invest in equipment and create jobs."

Possibly the economy will gain speed without the help of the extra fiscal stimulus. Most private economic forecasters see a modest pickup in activity in the months ahead. A sizable fall in the value of the dollar, apparently welcomed by Treasury Secretary John Snow, should encourage exports and discourage imports, lifting American production.

But in congressional testimony Wednesday, Federal Reserve Chairman Alan Greenspan said there was insufficient information on economic activity to make "a firm judgment about the current underlying strength of the real economy."

Already Democrats are warming up charges that President Bush has squandered prosperity, allowing the number of jobs to decline at a monthly rate of 69,000 since he took office.

The Democrats have been proposing tax cuts aimed more at lower- and middle-income Americans. The Republican package, though providing some tax breaks for those of modest income, aims more at business and the well-to-do on the basis that they will create more jobs.

In economic theory, almost any tax cut or extra government spending can give the economy a short-term boost. But the Fed must make room for extra growth with an expansionary monetary policy. Wall Street expects the Fed to make another cut in interest rates when it meets June 23-24.

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