Bush Offers Plan to Kick-Start the Economy President Bush, acknowledging the risk of a recession, embraces about $145 billion worth of tax relief Friday to give the sagging economy a "shot in the arm." He says tax rebates are the best way to stimulate the economy, largely weakened by subprime mortgage loans.
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Bush Offers Plan to Kick-Start the Economy

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Bush Offers Plan to Kick-Start the Economy

Bush Offers Plan to Kick-Start the Economy

Bush Offers Plan to Kick-Start the Economy

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President Bush, acknowledging the risk of a recession, embraces about $145 billion worth of tax relief Friday to give the sagging economy a "shot in the arm." He says tax rebates are the best way to stimulate the economy, largely weakened by subprime mortgage loans.

MADELEINE BRAND, host:

This is DAY TO DAY. I'm Madeleine Brand at NPR West.

ALEX CHADWICK, host:

And I'm Alex Chadwick exploring rural Nevada from the town of Eureka. This town of about 500 people has its own opera house. And coming up, we'll be there for a musical conversation.

BRAND: But first to Washington, where President Bush announced today how he'd like to avoid a full-blown recession. His prescription to stimulate the economy: tax rebates and more.

President GEORGE W. BUSH: This 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.

BRAND: One plan being considered could put up to $800 into the hands of individual taxpayers and $1,600 for couples. But it all depends on what Congress and the president can agree on.

And joining us now from Capitol Hill is NPR's Brian Naylor.

Hi, Brian. And can you give us the details of the president's plan today?

BRIAN NAYLOR: Well, the president didn't get too deep into the weeds, as they say, here. There weren't a whole lot of specifics other than his guidelines, some of which we heard there. It should be quick and temporary. It should include broad-based tax relief. And it should, as he said, bolster both business investment and consumer spending. He also said it should be a big enough package to have an impact on the economy. And that meant that it should be about the size of one percent of the nation's gross domestic product, which, they're saying, adds up to about $145 billion. And that's at the upper end of what congressional leaders have been talking about.

Madeleine, he also said there were a number of things the package shouldn't contain, and specifically new spending programs or any new tax increases.

BRAND: Now, Senate Majority Leader Harry Reid seemed a little irritated yesterday that the president decided to go public with his plan before hammering out all the details of an agreement with congressional leaders. So what does that say to you in terms of the ability of the two sides to work together?

NAYLOR: Well, you know, Madeleine, I think maybe Reid got up on the wrong side of the bed yesterday, because there's been an awful lot of meetings back and forth between the Democratic and the Republican leaders, an awful lot of talk of bipartisanship, an unusual amount, having covered Congress these past many years.

Maybe it won't last, but Democrats, you know, by and large seem to be getting pretty much what they want out of this. They want it targeted to low and middle-income Americans, and they've said that some business tax relief is appropriate. There's been some criticism that, you know, the income tax rebates won't do much to help those at the very lowest end of the economic scale because they don't pay much in income taxes.

And I think there might be some grumbling about the president's insistence there'd be no new spending programs because - excuse me - some Democrats are pushing for money to be, you know, spent on infrastructure repairs, helping out states that have bridge and highway programs underway. The president seems to be ruling that out. So there could be a little bit of pushback from Democrats over that. But by and large I think they'll be pretty happy with what he said this morning.

BRAND: Now, what about this idea about making the 2001 tax cuts permanent?

NAYLOR: Well, that's, you know, that is one of the president's longstanding wishes, and it's something that the Republicans in Congress would like very much to do as well. Unfortunately, you know, the wind behind that - the wind that was taken out of that sale a little bit yesterday by the Fed Chairman Ben Bernanke's comments, saying that basically, you know, what we need to do is help the economy now in the short-term.

Extending tax cuts that don't expire until the end of 2010 isn't going to do anything for the short-term health of the economy. But there is a lot of support among Republicans for extending those tax cuts - among Democrats, that is, though - it's a nonstarter. And frankly, I think the president's going to have a tough time convincing Democrats to change their tune on that.

BRAND: Hmm. Well, you know, the Dow dropped some 300 or so points yesterday. Stocks dropped today again after the president announced his plan. So is the feeling on Wall Street that Washington is just acting too late now?

NAYLOR: Well, I think so. I think some people are saying that this should have come last year. But I don't think the, you know, full parameters of this economic downturn were apparent to everyone. Everyone saw the subprime mortgage crisis, certainly. But insofar as the decline in the Dow since the beginning of the year and some of the other problems that have become manifest, it's kind of snuck up, I think, on some lawmakers. Having said that, you know, I think there is a lot of momentum here. Congress wants to act and they say they're going to do something in the next - or they could act in 30 days. And I think that would certainly help.

BRAND: NPR's Brian Naylor joining us from the Capitol, thank you.

NAYLOR: You're welcome.

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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.