Lawmakers Clash on Economic HelpAs Congress returns to Washington, it's clear that the first order of business is legislation aimed at giving a boost to the economy. With many economists predicting a recession, lawmakers from both parties are proposing ways to ease the sting.
House Speaker Nancy Pelosi (D-CA) and House Minority Leader John Boehner (R-OH) met Wednesday to discuss the economy.
Chip Somodevilla/Getty Images
Chip Somodevilla/Getty Images
House Speaker Nancy Pelosi (D-CA) met with GOP leaders to present a united front on the need to help the economy.
Chip Somodevilla/Getty Images
Options for Jumpstarting the Economy
Amid signs of a potential recession, President Bush and congressional lawmakers are weighing how to give the economy a nudge. Read a summary of proposals.
Maybe it's some leftover holiday spirit. Or perhaps it's polls showing most Americans take a dim view of the partisan gridlock in Washington. Whatever the case, in these early days of the second session of the 110th Congress, talk of bipartisanship abounds.
Congress recently came back to work in Washington, and while lawmakers seem to agree that an economic recession looms around the corner, the parties are split on what to do about it.
Democrats say a stimulus package could be on the president's desk in as few as 30 days.
"I think nothing would restore more confidence in the American people than if we could come up with a bipartisan initiative right away that says we are working together," said House Speaker Nancy Pelosi (D-CA).
Pelosi met with GOP House leaders on Wednesday to present a united front on the urgency of the problem. House Minority Leader John Boehner (R-OH) spoke to reporters afterward.
"There's no question there's a threat to the economy, and so there is an agreement that we will work together on a package that truly is stimulative that will happen quickly, and those conversations are going to continue in the coming days," Boehner said.
But the devil is in the details, and while the two parties agree that something should be done, they're not close to agreeing on what. Democrats tend to favor some direct cash infusions to low- and middle-income Americans in the form of tax rebates, by extending jobless benefits for those out of work, and by making food stamps more available.
Their mantra is that a stimulus program be targeted, timely and temporary.
"Direct injections of cash into the economy, through both immediate consumer and government spending, are the shots in the arm needed to ward off a recession," said Sen. Charles Schumer (D-NY). "In fact, many, many economists believe that spending stimuli have a greater immediate effect on the economy than tax cuts."
The Senate Joint Economic Committee — which Schumer chairs — heard testimony on Wednesday from a panel of economists. Former Treasury Secretary Lawrence Summers said any stimulus package should add up to $75 billion to $100 billion — and maybe twice that.
"Economic cooling is a much greater risk today than economic overheating. There is sufficient weakness in the economy now to justify stimulus legislation that will take effect as rapidly as possible," Summers said.
Democrats favor stimulating the economy by putting cash in the hands of consumers, and some Republicans agree. Other Republicans believe the solution lies in cutting taxes. There have been calls to extend President Bush's tax cuts, which are set to expire in 2010. And a group of conservative House Republicans have proposed cutting the corporate income tax rate from 35 percent to 25 percent.
"Perhaps one thing we agree on in Congress is that a stimulus package is needed. But we think it is more important to stimulate paychecks than stimulate welfare checks," said Rep. Jeb Hensarling (R-TX).
Nothing is likely to be settled until President Bush weighs in. He's meeting with congressional leaders next week, and it may become clearer whether Congress and the White House can truly put aside their partisan differences.
President Bush and congressional lawmakers are weighing how to give the economy a nudge in light of recent disappointing jobs numbers and a slumping housing market — not to mention markets roiled by the subprime mortgage crisis.
Policymakers have been tight-lipped about the options on the table, but it's likely that Republicans will favor a mix of business tax cuts and tax breaks for individuals, while Democrats will push for tax breaks and non-tax breaks that are more highly targeted to lower- and middle-income Americans.
Among the proposals the administration may look at:
Unemployment insurance benefits: In the past, policymakers have turned to temporarily extending unemployment benefits — generally limited to 26 weeks — when the economy has weakened because it becomes harder to find a job. According to Mark Zandi, chief economist at Moody's Economy.com, the change has the highest "bang for the buck" when it comes to giving the economy a boost relative to its cost.
Increase in food stamps: Advocates of the proposal, including Brookings Institution economists, say giving food stamp recipients 20 percent more aid for six months could be administered easily and quickly, and would be targeted at families most vulnerable to a recession.
Individual tax cuts: The Bush administration is reportedly looking at giving a $600 rebate to families with incomes less than $100,000, much like it did as part of an economic stimulus package after the Sept. 11, 2001, terrorist attacks. Some say that the lowest-income households should receive a benefit even if they have no income-tax liability. Reports also cite a proposal to temporarily reduce the bottom tax rate to 1 percent from 10 percent.
Business tax breaks: Policymakers may allow companies to deduct half the purchase price of capital equipment — such as property or machinery — from their taxes. The U.S. Chamber of Commerce recently suggested lowering the corporate tax rate. Rep. Eric Cantor (R-VA) recently proposed cutting the corporate income tax rate from 35 percent to 25 percent.
Housing help: Some have suggested increasing federal housing subsidies for this year, so that state housing authorities can buy property to rent to lower- and moderate-income families. Another reported proposal is a refundable tax credit for first-time home buyers.