Bush Proposes $145 Billion Stimulus Package
President Bush proposed $145 billion worth of tax relief as part of a plan to stimulate the U.S. economy amid fears that the subprime mortgage crisis and flagging consumer confidence could tip the country into recession.
The president's speech in the Roosevelt Room of the White House was short on details, but he said the plan, which represents 1 percent of the U.S. gross domestic product, "would be sufficient to provide a boost to the economy."
The president said the growth package "must be built on broad-based tax relief that will directly affect economic growth, and not the kind of spending projects that would have little immediate impact on our economy."
He called for unspecified tax rebates as well as tax breaks for small and medium-sized businesses. They "must be temporary and take effect right away, so we can get help to our economy when it needs it most," he said.
Stocks fell after the White House plan was announced as investors appeared to doubt how much of an impact it would have on the economy.
The stimulus package comes amid a spate of bad economic news in recent weeks, including a credit crunch prompted by the deepening subprime mortgage crisis, weak Christmas retail sales and falling consumer confidence. The shaky economy has sent jitters through worldwide financial markets.
Bush also called for a permanent extension of his 2001 and 2003 tax cuts. Most would otherwise expire in 2010.
Although the president's plan was at odds with some Democrats who have called for spending programs to boost the economy, both sides share consensus that the economy is precarious.
In his speech, Bush admitted "there is a risk of a downturn." Speaking after the president, Secretary of the Treasury Henry Paulson said he was confident of long-term economic strength, but that "the short-term risks are clearly to the downside, and the potential cost of not acting has become too high."
He said 1 percent of GDP would equate to $140 billion to $150 billion, which is along the lines of what private economists say should be sufficient to help give the economy a short-term boost.
"There's no silver bullet," Paulson said, "but, there's plenty of evidence that if you give people money quickly, they will spend it."
Senior aides to House Democrats and Republicans said in addition to included tax rebates for individuals, the emerging measure would contain tax breaks for businesses investing in new equipment, increases in food stamps, and higher unemployment benefits. They spoke to The Associated Press on condition of anonymity, since the talks are ongoing and lawmakers have promised not to reveal details.
Earlier Friday, House Speaker Nancy Pelosi said she wanted legislation enacted within a month and said the government must "spend the money, invest the resources, give the tax relief in a way that again injects demand into the economy, puts it in the hands of those who need it most and into the middle class ... so that we can create jobs."
With additional reporting from The Associated Press
Fed Favors Temporary Stimulus Package
Federal Reserve Chairman Bernanke said Thursday that the U.S. needs to enact a targeted and timely stimulus package that helps those who are struggling and that it should do it sooner rather than later.
Bernanke said he is in support of a $100 billion measure to stimulate the U.S. economy and that such a plan should be implemented quickly.
"To be useful, a fiscal stimulus package should be implemented quickly and structured so that its effects on aggregate spending are felt as much as possible within the next 12 months or so," Bernanke told the House Budget Committee.
He said that waiting too long could be destabilizing if it comes at a time when growth is already improving.
Lawmakers lectured the Fed chief and fired questions at him regarding which moves to take to spring the economy from its slump and evade recession.
He declined to lay out any specific requirements but said the economic effects of a fiscal stimulus package totaling around $100 billion could be "significant" and not "window dressing."
He did emphasize that any plans should also be temporary in order to prevent long-term fiscal challenges.
"Any program should be explicitly temporary, both to avoid unwanted stimulus beyond the near-term horizon and, importantly, to preclude an increase in the federal government's structural budget deficit," he said.
The U.S. is poised to encounter overwhelming long-run budget challenges stemming from an aging population and rising health care costs, he said.
Bernanke has said previously that some kind of fiscal stimulus is needed and that the Fed "stands ready" to act.
He told the congressional committee Thursday that the hamstrung economy — which began slowing in the fourth quarter of 2007 — is likely to limp along throughout 2008 and into 2009, due largely to the sharp contraction of the housing market.
As the housing contraction wanes, the economy should pick up, the Fed chief said in response to Rep. John Spratt (D-S.C.), chairman of the Budget Committee, who asked for an overall diagnosis of the economy for the next 12 to 18 months.
"We are not forecasting recession, but slow growth," Bernanke said, noting rapid increases in oil and food prices.
But stock investors were not consoled, and sold off the market. Shares were down more than 170 points in midday trading.
The Democratic-led Congress has expressed its willingness to back a stimulus package as well, saying legislation could be crafted and on the president's desk in 30 days.
The economy continues to weaken under the weight of the slumping housing market and credit woes, largely trigged by subprime adjustable-rate mortgage loans. These loans were made to consumers with poor credit and designed to give more consumers an opportunity to be first-time homeowners. Adjustable-rate mortgages are introduced with a low interest rate that resets over time. Many consumers were not prepared for the reset and are currently delinquent or in default of their loans.
Consumers' inability to pay off their loans put banks and other financial operations in jeopardy and rocked financial markets worldwide.
Bernanke said that in the subprime adjustable-rate mortgage market there are about 5 million mortgages with a total principle value of about $1 trillion, and currently about 20 percent of those mortgages are delinquent.
"Our expectation is that delinquencies will go higher and that there will be ongoing losses in the subprime area," he said.
He told lawmakers that if all 5 million mortgages go into foreclosure — stressing that that was an exaggeration — and say only 50 percent of the value were recovered, it would mean some $100 billion in losses.
More downbeat economic news regarding the housing sector was released before Bernanke's testimony: New-home building plunged last year by 24.8 percent. The Commerce Department said that is the biggest drop in 27 years.
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