President George Bush will be forced today to defend a massive regeneration package designed to kick-start the US economy which has come under withering attack as a sop to the rich.
The centerpiece of the White House proposals to spur on the anemic economy, which President Bush will unveil in a speech in Chicago, is the abolition of tax on shareholder dividends.
The elimination of the tax has helped to double the expected cost of Mr Bush's economic package to around $600bn (£373bn) over the next decade.
It has also exposed the White House to charges from Democrats and moderate Republicans that the Bush administration is seeking to take advantage of the economic recession to reward wealthy Americans and Republican party supporters at the expense of the poor and the middle classes.
The wealthiest stratum of Americans - an estimated 200,000 people earning more than $1m a year - accounts for barely 1% of US taxpayers, according to figures from the internal revenue service.
However, together they earned about $25.4bn in dividends last year, or about a quarter of the overall total of dividends for US taxpayers.
Yesterday, Democrats and moderate Republicans lined up against the economic package, singling out the dividend tax as unfair and a blow to the poor. Economists, meanwhile, said it offered precious little to stimulate economic growth or create jobs.
The furore over the tax cut was fueled by reports yesterday that the Bush administration intended to freeze all spending on domestic programs aside from homeland security.
Officials argue that the spending cap on welfare, the environment, job creation and other government programs is needed to put the budget on a war footing.
However, poverty action groups say the freeze will take away $3bn from programs that directly benefit lower-income groups at a time of recession.
They singled out a $300m cut to a program to help poor families with heating fuel costs.
"At a time when some people badly could use help, Mr Bush's tax cut mostly will help those who need it least," a leader comment in the Washington Post said yesterday.
President Bush and the Republican party leadership have fought back by accusing their critics of indulging in "class warfare".
The emerging row over the president's economic package now threatens to overshadow the first week of the new Congress when the Bush administration had hoped to capitalize on Republican control of both chambers to further its conservative agenda.
Instead, the handful of newly declared contenders for the Democratic party nomination for the 2004 presidential elections seized on the elimination of the dividend tax to kick-start their campaigns.
The Democrats were to release their own, more modest, version of an economic stimulus package last night. The measures, expected to cost the US treasury $130bn over the next decade, were thought to include individual tax rebates of $300 a worker, as well as business tax incentives.
President Bush's plan is also expected to include an extension of unemployment benefits and an acceleration of the tax cuts schedule approved two years ago, as well as tax incentives on equipment purchases for businesses.
Although a reduction in dividend tax had been widely anticipated, it did not become clear until yesterday that President Bush intended to eliminate the tax entirely.
However, administration officials claimed yesterday that shareholders suffered a double burden by being taxed on dividend earnings.
"Very often, critics of tax relief described everybody as rich in an effort to stop tax relief," the White House spokesman, Ari Fleischer, said yesterday. "I think that's been an old tactic by people who wanted to raise taxes on the American people in the first place."
© Guardian Newspapers Limited 2003