As President Bush takes advantage of Congress's two-week holiday to stump for his tax plan, Wall Street analysts, economists and fund managers gathered in New York this week to debate the merits and pitfalls of his controversial proposal to eliminate the tax on dividend payments.

The president is in the midst of campaigning for his $726 billion tax cut package with renewed vigor. There's much resistance in the Senate, which has steadfastly refused to entertain the notion of any more than $350 billion in tax cuts -- effectively eradicating the feasibility of the dividend tax cut. But with Congress on its two-week break for the holiday, most Senators aren't available for any immediate response to the president's crusading.

The president leaves Thursday for Ohio in an effort to persuade recalcitrant Republican Sen. George Voinovich to vote in favor of the $726 billion plan -- or at the very least, a $550 billion plan for tax cuts. In order to see his tax plan implemented with its cornerstone of the dividend tax cut in place, the president needs to convince Voinovich, and another moderate, Republican Sen. Olympia Snowe from Maine, to vote in favor of a larger tax cut. Without their votes, the dividend tax cut won't get out of the Senate as is, perhaps not at all.

The budget debate in the Senate has focused largely on how much money the federal government can afford to give up, especially in light of a rapidly expanding budget deficit. (For more details on Congressional activity on the matter, check

here for the Senate's surprise decision on March 26 to reverse its initial budget resolution;

here for the Republicans' fight to get a bigger chunk of Bush's tax cut proposal into the budget; and

here for Congress' solution to the tax cut debate.)

Dissecting the ramifications and implications of eliminating the tax on dividends was exactly what a group in New York gathered to discuss this week.

"This is an extremely radical proposal," said Glenn Hubbard, who spoke at the conference hosted by Gabelli Asset Management. Now a professor at Columbia University and director of the program on tax policy at the American Enterprise Institute in Washington, D.C., Hubbard just finished a two-year stint as chairman of the president's Council of Economic Advisers.

"As proposed, this plan could add a full percentage point to GDP growth," Hubbard said, countering the argument that the proposal won't stimulate the economy. Eliminating the tax on dividends will raise share prices anywhere from 5% to 15%, lowering the cost of capital. An 8% to 9% rise in the stock market will translate to $800 billion or $900 billion in market value -- equal to a third of a percentage point rise in GDP. "It amounts to an investor tax credit of 4% to 7%," he said. "That's a big kick in the pants for big investors."

Hubbard dismissed the idea that the proposal adds complexity to the tax code, and also said he was not disturbed by the hulking deficit. "This tax plan is deficit-financed; there's no denying that," he says. "But most of that isn't from the dividend tax cut. Most of it is from accelerating the tax cuts already in the law."

Economists such as Hubbard and

Federal Reserve

Chief Alan Greenspan are top-down thinkers, though, according to Marty Whitman, venerated value investor and chief executive of Third Avenue Funds. Whitman takes a dimmer view of the president's proposal, saying that when you look at its effect from the bottom up the picture isn't as rosy. ("I once was an economist, now I've graduated -- I'm a securities analyst," he said.)

Eliminating the tax on dividends could actually weaken the economy, Whitman said. "I'm awfully uncomfortable with the Bush administration playing Russian roulette with U.S. creditworthiness," Whitman said. "Investingwise nothing will happen, but I've become convinced that the U.S. dollar will weaken vs. other currencies, which will increase the pressure to a rise in long-term interest rates."

There's nothing wrong with a deficit

per se

, Whitman said, but that borrowed money should be put to good use. And this tax cut isn't good use, according to him.

Whitman expects three negative implications from the Bush plan. It will eliminate any management incentive to increase investment in "productive assets." State and local governments, as well as the federal government, will be deprived of much-needed income. And the Internal Revenue Code will become materially more complicated.

"Anyone who says that it won't have much impact on the tax code is someone without much background in corporate finance," Whitman said. "Mergers and acquisitions, mezzanine securities, all sorts of complicated private ownership rules will all contribute to this being a bonanza for the lawyers who have to figure it out."