Tax Rollbacks Could Be Delayed In Obama Stimulus Plan
U.S. President-elect Barack Obama may consider delaying a campaign promise to roll back tax cuts on high-income Americans as he works on a huge stimulus plan to counter the worst economic crisis the world has faced in decades.
In other moves to stave off the worst economic mess since the Great Depression, the 21 members of the Asia-Pacific Economic Cooperation forum declared at the end of a two-day summit in Lima that they would take all necessary economic and financial measures.
And diplomats also said there was a high probability the World Trade Organization would hold a ministerial meeting next month to seek a breakthrough in the Doha round of trade talks. But it may be the moves by Obama that resonate most in global financial markets on Monday.
Two Obama aides indicated when asked on Sunday TV talk shows that the tax cuts brought in under the current administration of Present George W. Bush may be allowed to run their course until the end of 2010, rather than being rescinded by legislation before then.
Business leaders and economists had expressed concern that raising taxes now would only exacerbate the economy's woes. Obama, who will take over from Bush on January 20, is ready to announce his top economic team on Monday.
He plans to nominate Timothy Geithner, president of the New York Federal Reserve Bank, as Treasury secretary, a transition official said. Lawrence Summers, 53, who was Treasury secretary in the Clinton administration, will help shape policy as director of the White House National Economic Council, the official said.
On Saturday, Obama laid out plans for a two-year economic stimulus involving the creation of 2.5 million jobs. The size of the stimulus plan appears to be growing from the $100 billion to $300 billion previously suggested by congressional leaders.
One influential Democrat, Sen. Charles Schumer of New York, said on Sunday that a package of up to $700 billion was needed to support the American economy. Schumer also said he expects Congress to get the package onto Obama's desk for signature by Inauguration Day.
"The main thing right now is to get this economic recovery package on the road, to get money in the pockets of the middle class, to get these projects going, to get America working again, and that's where we're going to be focused in January," senior Obama adviser David Axelrod told Fox news channel. When asked if the tax cuts for the wealthy would be allowed to expire on schedule after 2010 rather than be rolled back earlier, Axelrod said: "Those considerations will be made."
Another adviser, Bill Daley, said on NBC's "Meet the Press" that the 2010 scenario "looks more likely than not." The comments on the tax increases, the stimulus plan and the economic appointments should bring some cheer to the furrowed brows of investors in world markets, but it may only be temporary.
U.S. stock prices, pummeled for most of last week, rallied more than 6 percent on Friday after word first leaked out that Geithner might take the helm at Treasury.
"I think it will help the market on Monday but I think it will be very short-term help," said Michael Pento, senior market strategist at Delta Global Advisors. "You can stimulate the economy in the short run by a temporary adrenaline stimulus and a steroid shot of deficits, but in the long run it's extremely deadly."
At the meeting of APEC, which includes the United States, Peru pledged to push for a so-far elusive global free trade deal that they said would help keep the world from sliding into a deep recession. Bush, Chinese President Hu Jintao, Japanese Prime Minister Taro Aso and other members of APEC, said they would refrain from raising trade barriers over the next 12 months.
They also supported overhauls of the International Monetary Fund (IMF) and the World Bank at a time when more countries need emergency bailouts to avert economic devastation. "The current situation highlights the importance of ongoing financial sector reforms in our economies," the leaders said in a statement.
They committed to try to reach a breakthrough in the stalled Doha round of trade talks before the end of this year. China's Hu said leaders must pay attention to the impact of the crisis on the developing world and provide it with support.
Japan was expected to reiterate an offer to give $100 billion to the IMF to prod other countries to chip in funds.
BLAME IT ON THE U.S.
Canadian Prime Minister Stephen Harper and Mexican President Felipe Calderon blamed the United States for starting the crisis and called for better banking regulations.
In other developments, Britain prepared plans to inject billions of pounds into the economy to stave off recession amid slumping house prices, rising unemployment and shrinking manufacturing output.
Finance Minister Alistair Darling will unveil the package of tax cuts and extra public spending expected to total up to 20 billion pounds ($30 billion) on Monday, newspapers said.
A cut in the so-called value added tax, or VAT, is aimed at giving a pre-Christmas boost to consumers' spending power.
"Doing nothing is not an option," Prime Minister Gordon Brown said in a speech he will give to business leaders on Monday. "We need timely action now to prevent permanent damage."
ASIA LEARNS TO FLINCH
China also planned more ways to support its economy, now showing signs of being infected by the crisis after years of extraordinary growth. =State television said projects planned by provincial governments will add an additional 10 trillion yuan ($1.5 trillion) to the value of a 4 trillion yuan economic stimulus package announced earlier this month.
The investments include rail, roads, ports and housing, CCTV said. The spending plans will emphasize rural infrastructure. South Korean officials said they had further policy options to combat the global downturn, putting pressure on the central bank to cut interest rates in Asia's fourth-largest economy. "We need financial support for small companies and exporters," Prime Minister Han Seung-soo said.
In the Gulf, also feeling the crisis despite its oil riches, Saudi Arabia's central bank slashed its benchmark lending rate from 4 percent to 3 percent, the second reduction in a month to keep credit markets moving and boost liquidity.
- Citigroup Update: Reports Emerge Of Possible Plan