Stimulus would help, but maybe not enough

John W. Schoen Senior Producer • Profile • E-mail

With Congress, the White House and Fed Chairman Ben Bernanke now in broad agreement that a tax and spending package is needed to boost the economy, the odds have improved that something will get done. But the proposals, to date, have been short on details. And no matter what any final package looks like, it’s far from clear that it would prevent the economy from slipping into recession.

President Bush and Treasury Secretary Paulson Friday offered a general outline of what they would included in a so-called fiscal stimulus bill, but they gave no details.

“We intentionally don’t want to be overly specific because we’re looking to be collaborative, and there’s a lot of bipartisan agreement,” said Paulson.

White House officials have been floating the idea of a one-time “tax rebate” of $800 for individuals and $1,600 for couples which would make up the bulk of the spending package. A one-time cash infusion is also likely to generate broad consensus among politicians in an election year in which the economy has become the most important single issue among voters.

Democrats are pushing to keep the rebates targeted to those at the bottom end of the income ladder — who they say are most likely to spend the money quickly. But it’s not clear who would be eligible for the rebate. The White House proposal could leave out those who don’t earn enough money to owe income tax but still have to pay Social Security payroll taxes.

Additional proposals that seem to be generating consensus include extending unemployment benefits, boosting food stamp payments and allowing businesses to write off equipment purchases more quickly.

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If the measure is enacted, it will be relatively small in the context of the overall economy. The White House is suggesting a package of no more than $150 billion — or about 1 percent of the $14 trillion gross domestic product. So even if all of that money were spent directly and quickly on goods and services, it’s unlikely it would — by itself — insulate the economy from recession.

The White House and some Republicans in Congress have urged that any stimulus package include an extension of the broad tax cuts engineered by the Bush administration in the president's first term. Those cuts, which lowered taxes on income, inheritance and capital gains on investments, are set to expire in 2010.

"Unless Congress acts, the American people will face massive tax increases in less than three years,” Bush said Friday. “This tax increase would put jobs and economic growth at risk. And Congress has a responsibility to keep that from happening."

But Democrats strongly oppose making the Bush tax cuts permanent, and a protracted debate on the issue could delay or derail passage of a stimulus bill.

House Speaker Nancy Pelosi this week sought to head off debate on the issue.

“This is not a stimulus,” she said Thursday. “They're not timely. They're not targeted and they're not temporary. So they don't meet the standard in any way. What we want to do is come together on something ... that will stimulate the economy.”

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