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WASHINGTON -- U.S. President George W. Bush is poised to unveil his second major tax cut in less than two years tomorrow -- a 10-year package worth up to $600-billion (U.S.) designed to kick-start the sputtering U.S. economy. But critics complain that the proposal, while economically sound, will offer almost no short-term relief for an economy that's been adrift for months.

The centrepiece of the plan is expected to be a tax break of up to 50 per cent on corporate dividends, which currently face a form of double taxation because they are taxed in the hands of both companies and shareholders.

The Bush administration is also reportedly looking at additional tax incentives, including an acceleration of previously announced income tax cuts and more generous writedowns for businesses when they buy equipment.

"There are very sound economic reasons for doing this, but this is not a stimulus package," remarked Kevin Hassett, a former U.S. Federal Reserve economist now at the American Enterprise Institute in Washington.

Cutting the tax on dividends will encourage public companies to pay out profits to shareholders and put equity financing on a more equal footing with debt financing, Mr. Hassett explained.

"One of the things we've learned is that when companies hoard cash within the firm, executives often waste the money," he said.

Until now, the tax system has encouraged companies to pile on debt, rather than sell more shares, because of the relatively high tax burden on dividends, Mr. Hassett explained.

But that also exposes companies to greater financial risk during economic slowdowns, he added.

While the dividend tax break makes sound economic sense, it won't do anything in the short term for the economy, according to economist Peter Morici, a business professor at the University of Maryland.

Canada and most European countries already tax dividends at a lower rate than other income.

"It's good long-term policy, but it's not something that's going to have an immediate impact on the economy," Prof. Morici said. "Where's the stimulus?"

The dividend tax break, if accepted by the U.S. Congress, won't help investors until 2004 at the earliest, he said.

Worse still, any boost the tax cut gives the economy is likely to be offset by the actions of cash-starved U.S. states, which are now struggling to deal with dwindling tax revenues and soaring deficits, according to Prof. Morici.

"The economy is already picking up a lot of fiscal drag," he said.

Analysts have estimated that a 50-per-cent tax break on dividends would cost the U.S. Treasury as much as $250-billion over the next decade.

The Bush administration and Congress pushed through a 10-year, $1.3-trillion tax cut during their first year in office. The plan included early rebates for tens of millions of U.S. taxpayers, and is widely credited with sustaining consumer spending as the economy slipped into recession in 2001.

But Mr. Bush is already running into flak from Democrats that this second tax cut would benefit mainly wealthy Americans, who are far more likely to have dividend income.

Nancy Pelosi, the Democratic leader in the U.S. House of Representatives, complained that a quarter of the tax break would go to people earning more than $1-million a year.

"What you see is the administration perhaps using the term stimulus as a Trojan horse to wheel in some favourite tax breaks for the high end that they're so fond of," she said. "So, this thought that this is something that helps the American people is an illusion, because it's a plan to help the high end at the expense of working families in our country."

Ms. Pelosi, who said the Democrats would lay out an alternative stimulus plan today, also scoffed at the notion that dividends are taxed twice.

"Some of these companies that pay dividends have never paid taxes, so there's nothing double about it at all," she said. "And even if some had paid taxes, there is no reason to think that that would stimulate the economy."

To counter those charges, the Bush administration is reportedly also considering an extension of federal benefits for laid-off workers and an accelerated increase in the child tax credit.

Mr. Bush is slated to unveil details of his economic stimulus package during a speech tomorrow to the Economic Club of Chicago.

But time for Mr. Bush to get the economy growing steadily again may be running out, Prof. Morici suggested.

The 2004 presidential election campaign has already begun, with a handful of Democratic hopefuls already actively running. Prof. Morici said many voters will have made their choice for president by the end of next year, when the primary season gets into gear.