Unity on Need for Stimulus, but Still Room for Debate
Agreement between the White House and Congress that the stumbling U.S. economy needs help was a big first step but it was clear Saturday there was room for sparring over crafting a rescue package.
Early signs are that Democrats want tax rebates targeted specifically toward the poorest, while Republicans seek the quickest and simplest method of getting tax rebates into consumers'hands in the hope they will be spent just as quickly.
In his weekly radio address, President Bush said he wanted "broad-based tax relief" as fast as possible, while the chairman of the House Financial Services Committee, Democrat Barney Frank of Massachusetts, spoke of "tax rebates for most Americans."
"Economists agree that middle and working class people are most likely to spend that money in a way that will effectively stimulate the economy and create jobs," Frank said, adding there should be "one-time increases in programs directed at those who are bearing the heaviest burdens in this economy."
All on the Table
Bush and his top economic advisers, including Treasury Secretary Henry Paulson, were careful Friday to foreclose no options while setting out principles for a package worth about $145 billion of temporary tax cuts and other measures.
Paulson spurned questions about whether it would be most effective if weighted more heavily toward poorer Americans, telling White House reporters, "It's not my job to negotiate this package in this room."
Whatever is done needs to happen swiftly, which argues against extensive fine-tuning of proposals. Frank said there should be extended help for the unemployed and for people pinched most by rising food and energy costs, as well as homeowners facing foreclosure -- a lengthy list.
"We believe there's a great benefit to being simple," Paulson said. "We're not trying to decorate a Christmas tree here. A huge part of this is going to be speed, it's going to be getting money out quickly."
Among the reasons for speed is that economic worry has climbed to the top of the list of voter concerns in state-by-state battles to pick the Democratic and Republican contenders for November's presidential election.
In Recession Now?
Many analysts fear the economy is on the verge of recession and some think it may already have slipped into one, notably in areas like Florida, Nevada and California where the housing sector is in severe decline and foreclosures are soaring.
Proposals under discussion include trimming the lowest income tax rate and giving the money back in a rebate.
If the 10 percent income tax bracket was cut to zero for one year, tax tables show single workers would not pay tax on the first $8,025 of taxable income and couples would not pay on the first $16,050 -- leaving room for rebates of $800 and $1,600 respectively.
As well, businesses might be allowed to write off as much as 50 percent of new investments, a spur for spending.
The proposals so far resemble what the Bush administration did in 2001 to try to ward off recession, but analysts warn the situation is different this time with credit markets also under restraint and lenders unwilling to lend.
"If they are able to put this program in place within the next two months, add spending punch through it, then it might make a dent in the possibility that we face recession," said Rajeev Dhawan, director of economic forecasting at Georgia State University in Atlanta.
"But the real issue is that we are facing a credit market freeze-up," he said. "I am of the opinion that we are headed toward a sustained period of low growth with possibly a short period of recession."