Curious George on the economy. (Comment).

It's hard to find fault with President Bush's plan to eliminate taxes on stock dividends. The inequity of dividends being taxed on both corporations and shareholders has bounced around Washington policy circles for years. So have similar inequities involving the marriage penalty and the absurdly high tax rates on estates valued in the high six-figures (recently adjusted upward).

But what the President's people gloss over is that changing the tax code generally has little effect on the economy -- certainly not in the short run. Which is the curious thing about the $670 billion Bush stimulus plan; it focuses less on immediate relief and more on longer-term adjustments that will cause the deficit to skyrocket.

It also has the nation's governors up in arms because no help is being offered the states, which need it the most these days. If anything, Bush's package makes things worse; the dividends provision will cost state and local governments millions of dollars in lost revenue because it makes stocks a more competitive investment vehicle to tax-free municipal bonds.

With 43 states already facing budget deficits totaling $85 billion, led by California's $34 billion gap, here was an opportunity for genuine stimulus. And, according to early press reports, the administration had been studying a huge multiyear state aid package. But nothing came of it (no explanation given), leading to inevitable speculation about Bush not being keen on bailing out California--and most especially, Gov. Gray Davis.

Such a scenario is hard to imagine, if for no other reason than the predictable political heat Bush has caught from other governors facing red ink of their own. Surely, the Bush brain trust must recognize that economic pain eventually rises to the top. Perhaps the aid package will be presented a little closer to presidential campaign season -- just so that folks don't forget.

You mean politics is connected to economic stimulus? What do you think those hypothetical tax savings published in the papers are all about? To state the obvious, voters like the prospect of savings a grand or two in tax bills -- even if it's more sizzle than substance at a modest cost of $640 billion over 10 years, and even if spend-happy consumers hardly need any more incentives to buy stuff.

If anything, the Bush plan eventually will inhibit consumer purchases because interest rates are likely to creep up thanks to those ever-larger deficits. Suddenly, financing a home or car won't be quite the bargain it's been these last few years. (And we're not even factoring the higher cost of gasoline prices once war breaks out in Iraq.)

The real roadblock to economic expansion has been -- and remains -- on the corporate side. And it's all about fear -- of war with Iraq and ongoing terrorist threats, to be sure, but more importantly, of failure. It's an understandable feeling, given three years of market declines, an imploding technology sector, and a wave of corporate chicanery, and it can't be waved off by child-care credits and a few small business writeoffs.

Last week, just as Wall Street was taking off on word of Bush's economic plan, Alcoa Inc. reported a wider-than-expected fourth quarter loss and casino operators projected quarterly results falling short of estimates. That day, the Dow lost 145 points (though it did better the next day). As earnings begin trickling in over the next few weeks, it will be the first of many reminders about the economy's fragility and the curious ways in which George Bush is dealing with it.

Mark Lacter is editor of the Business Journal.