How the Stimulus Package Will Affect You

Dave and Eileen Dahm are like many American families President Bush says will benefit from his new tax plan.

Dave is a union electrician earning $50,000 a year, while Eileen works at home taking care of their two children. Bush's proposed income-tax cut of 1 percent would save them $133 this year.

But more important for the Dahms is the money they would save through an increase in child tax credits for them: another $800. With a total of $933 in their pocket, that's money they can spend on things like decorating their home.

"Buy another couch, that's all I think about," says Dave.

Spending their savings to stimulate the economy is exactly what the Bush administration is hoping families will do with their proceeds from the president's proposed stimulus package.

Totaling $670 billion over 10 years, the new stimulus package will include a number of tax cuts designed to put more money into the hands of consumers. That would ultimately benefit the struggling economy, since consumer spending represents about two-thirds of the nation's economic output.

Families Could Benefit

For instance, Bush's plan is expected to include an accelerated 1 percent tax cut this year to the current 35 percent, 30 percent and 27 percent income-tax brackets, along with a $400 increase in the child tax credit for parents whose combined income is less than $110,000.

For married couples, President Bush may include in his proposal a complete elimination of the so-called marriage penalty. According to the nonpartisan Tax Foundation, a median family of four would save an average of $532 if such a penalty were eliminated.

Investors would also be big beneficiaries of the proposed stimulus package. A centerpiece of Bush's plan may involve the elimination of taxes paid on dividends.

In addition, the president may set an exclusion of 50 percent, so if you received $2,000 in dividends from a company, you would only be taxed on $1,000. Either of these benefits could help many retirees, who receive some or all of their income from investment dividends.


The reduction on dividend taxes is expected to increase investor confidence and subsequently could have a positive effect on the stock market.

Unemployed Hope for Extension

The unemployed would also benefit from Bush's stimulus package. A key component of the plan may be to extend unemployment benefits to the more than 95,000 people who will exhaust their state unemployment benefits every week.

Typically, unemployment insurance lasts for about six months; Bush's proposal would extend it an additional three.

That's an additional $5,100 more in aid for people like Vaughan White, who lost his $50,000-a-year counseling job four months ago.

As he hunts for work, he receives $425 a week in unemployment benefits. Right now, his benefits will run out in two months.

"It would take a lot of stress out of my next two or three months worrying about whether I would have constant income coming in," he says.

Critics Uneasy About Plan

While many people are expected to benefit from the stimulus package, critics of the plan say it favors the rich.

The elimination of the dividend tax, for example, is widely seen as favoring the wealthy.

Even wealthy investors like Bill Bartholomay, chairman of the Atlanta Braves, are uneasy. "I'd take a reduction, but I'm also concerned," says Bartholomay. "I have been very lucky and I'm concerned about deficits that we have to absorb in this country.

But White House spokesman Ari Fleischer says the president's tax cuts would help everyone. Around 10 million senior citizens would benefit from paying no taxes on their stock dividends while 34 million families with kids would be able to get an average tax break of about $1,400 this year, says Fleischer.

"That's real money, that's a lot of real money to a lot of Americans," says Fleischer. "I think that anybody who hears that they may get a thousand dollars of their money back is very appreciative for it."

He added that around 92 million taxpayers would receive receive on average a tax cut of $1,083 in 2003.

Still, while average people like the Dahms welcome the proposed tax cuts, they too worry what it will cost the U.S. government in the long run.

"I'm concerned about where that money is going to go to and where it's coming from," says Eileen Dahm.

ABCNEWS' Ann Compton and Ramona Schindelheim contributed to this report.