MercoPress. South Atlantic News Agency

US Senate approves tax reduction.

The United States Senate finally approved last Thursday a 350 billion US dollars tax cut presented by the White House in an attempt to pull the US economy out of its anemic condition. However the ten year proposal passed the higher House with a tight 51-49 majority and now faces a conference with the House of Representatives that approved a 550 billion US dollars cut, more in line with the original President Bush proposal of 726 billion.

But the legislative process has come under strong flak because one of the main points is a considerable reduction in shares dividends that benefits mostly the rich and will only last until 2007, when Congress again must consider its reinstatement.

"There's absolutely no economic or fiscal policy that justifies the idea of eliminating and then reinstating tax on dividends", said Robert Bixby from Concord Coalition a financial assessment center.

Democrats were also very critical since they favor investing the money in social programs or helping limit the burgeoning federal budget deficit, which this fiscal year is estimated to be above 300 billion US dollars according to the Budget Office of Congress. "The whole plan is illogical, and will represent no stimuli since it will only deepen the states budgetary crisis and further accumulate deficits", said Democrat Senator Dianne Feinstein.

The strong Republican initiative in Congress was followed by President George Bush announcement before the Federal Election Commission that he will be running for reelection next year (November 2004).

But this last week's economic data was not necessarily encouraging for the president with mounting fears that the US economy might stumble into a spiral of deflation that inhibits consumers and companies from spending and therefore flattens economic growth even further.

US inflation last April dropped to a 37 year low, with the month on month figure flat for the second consecutive month, something that did not happen since 1982. Consumer prices excluding energy and food increased 1,5% compared to April 2002, according to the latest release from the Labour Department, an event which did not happen since March 1966.

Industrial production is also expected to fall 0,5% in April for the second month running given the sluggish economy.

The producer price index actually dropped 1,9% in April, the greatest dip in wholesale prices since records were started in 1947.

However, Republican Congressional sources indicated that the decline was mostly caused by the fall in energy prices (8,6% in one month), as well as for cars, trucks and cigarettes. They also pointed out that production of high-technological equipment actually increased during April and the much watched University of Michigan consumer confidence index rose to 93,2 from 86 in March.

"This means US consumers are feeling rather optimistic and could be preparing to begin spending", said Arturo Porcekanski from ABN-Amro.