Fast economic fix urged  Bush, Congress moving toward rebates, incentives

By David Nitkin, Matthew Hay Brown and Jamie Smith Hopkins
January 19, 2008

WASHINGTON

Acknowledging the toll taken by a housing slump and lagging consumer spending, President Bush urged Congress yesterday to rush one-time rebates to taxpayers and tax incentives to businesses to give the nation's economy a "shot in the arm."

"While there's some uncertainty right now, if we act quickly and in a smart way that helps growth, we're going to be just fine," Bush said during a visit to a lawnmower manufacturer in Frederick, the type of business he said would benefit from the proposal.

The White House did not disclose details of the plan, expected to come mainly in the form of several-hundred-dollar checks, similar to those issued during a 2001 recovery program. The final package would be determined by Congress, Bush said.

But the administration wants to return about $145 billion to families and businesses, an amount equal to roughly 1 percent of the nation's gross domestic product. Lawmakers and aides involved in the talks say amounts of up to $800 for individuals and $1,600 for married couples have been discussed.

A day after talking to congressional leaders from both parties about the need for a stimulus plan, the president predicted that he and lawmakers "can come together on a growth package very quickly."

The announcement did little to help the stock market. The Standard & Poor's 500 Index finished with its biggest weekly loss in five years. After starting higher, the Dow Jones Industrial Average dropped by a half-percent by day's end.

Some interest groups pounced soon after Bush spoke, saying the president did not go far enough.

Bush's proposals "do not address crucial problems facing working families, and do not target tax benefits to those families who need them most and will spend them fastest," AFL-CIO president John J. Sweeney said in a letter to Democratic congressional leaders.

Sweeney urged lawmakers to include increased unemployment benefits, food stamps, money for state and local governments and spending for construction projects in their final plan. But the White House appeared cool to those suggestions.

"We believe that there's a great benefit to being simple. The Christmas season has come and gone. We're not trying to decorate a Christmas tree here," Treasury Secretary Henry Paulson told reporters. "If we can stay broad-based and simple, we'll be able to be quicker and be able to have a bigger impact on the economy sooner."

Still, underscoring the fragile nature of the economy, lawmakers and administration officials said that there was room to negotiate, sounding a markedly different tone than during recent rancorous Washington debates over the budget, children's health care, war spending and immigration.

"The good news is nobody has sort of dug their heels in and said, 'We have to have this provision,'" said Rep. Chris Van Hollen, a Montgomery County Democrat.

"Both sides have said, here are the principles that are going to govern what goes into the package, and now we can work it out together," Van Hollen said. "As Yogi Berra said, 'It ain't over till it's over,' and especially when it comes to trying to work things out in the current political environment. But we're heading in the right direction."

Economic concerns are resonating in an election year, and presidential candidates had varied reactions to Bush's plan. Sen. Hillary Rodham Clinton, a Democrat, said the proposal "shortchanges" millions of low-earning families, including blacks and Hispanics. But Republican Mike Huckabee, the former Arkansas governor, said on CNN that the president was "on the right course."

Demonstrating that he was aware of the concerns facing businesses and families, Bush left the White House yesterday to visit Wright Manufacturing Inc. of Frederick, which makes commercial lawnmowers. Founded by Bill Wright, the company has grown from 60 to 100 employees, and it used the earlier tax incentives to invest in new equipment, the president said.

Bush toured the spotless factory, located in an industrial park off English Muffin Way, greeting welders with a hearty "Hola!" before arriving at a display of the company's signature product: a yellow mower called "The Stander."

"Fire this sucker up," the president said before taking his place behind the controls, pivoting the mower back and forth as its wheels squeaked on concrete.

"I love the entrepreneurial class," Bush said. "I love people who have a dream and work hard to achieve the dream."

Accompanying Bush on his tour was Rep. Roscoe G. Bartlett, a Republican who represents Frederick. "I think it's really nice that he was lauding a local, small business, a family business that was [in] manufacturing," Bartlett said.

Some economists agreed yesterday that returning money to consumers and aiding businesses could provide a boost during a tenuous time.

Robert T. Sweet, an economist at MTB Investment Advisors, an M&T Bank division based in Baltimore, said it was "touch and go" whether the country saw any economic growth at the end of last year.

Holiday sales were the weakest in five years as consumers reined in spending. U.S. employers added just 18,000 jobs in December, the lowest since the summer of 2003. And this week, the government reported that ballooning costs for food and energy last year are to blame for the biggest increase in inflation since 1990.

More than half of Maryland residents polled by The Sun last week said they think the state's economy is worsening. When consumers feel that way, they're more likely to hunker down, which adds another push toward recession, Sweet said.

"The consumer has to feel good about spending money," he said. "They've got to know that they've got a safe job and that inflation's not too high and things like their home and the stock market aren't tanking."

There were broad concerns about a recession in early 2001, too. Two-thirds of American households got tax rebate checks that summer - typically $300 or $600 - as part of Bush's first stimulus plan. People spent most of that money within six months, helping to end that recession, according to a 2004 study by David Johnson of the Bureau of Labor Statistics and two other economists.

"Rebates are effective," said Richard P. Clinch, an economist at the University of Baltimore's Jacob France Institute. "They dump money in people's hands when you want them to spend it."

Albert S. "Pete" Kyle, a finance professor at the University of Maryland's Robert H. Smith School of Business, said Bush seems to be taking his cue on the stimulus package from Federal Reserve Chairman Ben S. Bernanke, who suggested measures earlier this week that were consistent with the president's plan. Bush backed away from his call to make earlier tax cuts permanent as part of the stimulus plan, although he said Congress should do that later.

Without an insistence on permanent tax cuts immediately, the plan should find an easier route in Congress, Kyle and others said.

"It's more likely than not that the country will go into recession, even with the stimulus package, but I think the stimulus package will make any recession we have - if we have one - that much lighter," Kyle said.

While Democrats and Republicans expressed optimism that they could come together quickly and approve a package by month's end, key differences need to be resolved.

Many Democrats want extended unemployment benefits, home heating oil assistance and food stamp increases. Republicans back tax breaks aimed at businesses, which they say would secure jobs and create new employment by encouraging business investment.

The sides also differ on how to pay for the package. Rules favored by Democrats require new spending to be offset by spending cuts or revenue increases. Republicans oppose tax increases.

The president's endorsement marks something of a shift for the administration, which has long expressed optimism about the economy.