WASHINGTON – United for urgent action, the White House and Congress raced toward emergency steps Thursday to rescue the economy from a possible recession, including tax rebates of at least $300 a person – and maybe as much as $800.
Federal Reserve Chairman Ben Bernanke endorsed the idea of putting money into the hands of those who would spend it quickly and boost the flagging economy.
All the talk of rescue efforts failed to soothe Wall Street: The Dow Jones industrials plunged 306.95 points. The scramble to take action came as fears mounted that a severe housing slump and painful credit crisis could cause consumers to clamp down on spending and businesses to put a lid on hiring, throwing the country into its first recession since 2001.
President Bush told congressional leaders privately he favors income tax rebates for people and tax breaks for businesses, officials said. Bush spoke with congressional leaders as House aides worked behind the scenes on an emergency package that also could include more money for food stamp recipients and the unemployed.
Aides to lawmakers involved in the talks said the White House is pressing for tax rebates of $800 for individuals and $1,600 for married couples. Lawmakers were likely to settle on a $500 rebate for individuals, said an aide involved in the talks, with details for couples and people with children still being negotiated.
The rebates likely would be limited to individuals with incomes of $85,000 or less and couples with incomes of $110,000 or less, the aide said, speaking on condition of anonymity because no final decisions had been made.
The president did not push for a permanent extension of his 2001 and 2003 tax cuts, many of which will expire in 2010, one official said. That would eliminate a potential stumbling block to swift action by Congress, since most Democrats oppose making the tax cuts permanent.
Bush planned to lay out his position today, but he wasn’t expected to go into specifics. Press secretary Dana Perino said he would demand that any package be effective, simple and temporary.
Bernanke voiced support for a stimulus package in an appearance before the House Budget Committee. He stressed that it must be temporary and implemented quickly. “Putting money into the hands of households and firms that would spend it in the near term” is a priority, he said.
Especially important is making sure a plan can put cash into the hands of poor people and the middle class, who are most likely to spend it right away, he said, though he added that research shows affluent people also spend some of their rebates.
He declined to endorse any particular approach, but he did say he preferred one that would not have a long-term adverse effect on the government’s budget deficit.
Bush and congressional leaders from both parties consulted via conference call Thursday for about 30 minutes. Both sides basically agreed they needed to cooperate to do something quickly, Perino said.
“There is reason to be hopeful when the president recognizes there is a problem in the country,” House Speaker Nancy Pelosi, D-Calif., said. She has talked of a package totaling $100 billion or more. House Republican leader John Boehner, of Ohio, spoke of a $100 billion to $150 billion bill.
Senior aides to House Democrats and Republicans said that in addition to 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 on condition of anonymity, since the talks are ongoing and lawmakers have promised not to reveal details.
Boehner said he was encouraged, and so did Majority Leader Steny Hoyer, D-Md. Hoyer said of his counterpart, “He indicated that he wants to work together to get something done.”
Pelosi said she wanted legislation approved within a month and 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.”
But Boehner said: “For this bill to become law, it cannot become a Christmas tree” for Democrats to attach their programs. “It’s hard to get anything moving within a year, and most of us believe that if we’re going to have a stimulative effect at helping to revive what is becoming a sluggish economy, it needs to happen quickly.”
Later, Boehner emerged from a meeting with Pelosi saying he had “productive” and “substantive” talks with her and other Democratic leaders.
Sen. Harry Reid, D-Nev., the majority leader, took issue with Bush’s scheduling public remarks on the issue before a deal had been struck.
“The president’s strategy threatens to unnecessarily politicize the inevitable bipartisan negotiations we will need to quickly enact legislation,” Reid said.
The White House took issue with that – and called Reid’s office to make clear that Bush on Friday would be spelling out his broad principles, not specifics.
White House spokesman Tony Fratto said Bush does not believe a stimulus should be offset – or paid for – by any tax or spending changes elsewhere. Some deficit-hawk Democrats have pushed for one, but it is not expected to be part of a package.
For now, Bernanke was hopeful the country could skirt a dangerous downturn. “We’re not forecasting recession but, rather, at this point, slow growth,” he told lawmakers. Still, the toll of the housing and credit debacles will be felt for some time, he added. “We believe we’ll see below-trend growth certainly in 2008 and probably early into 2009, as well.”
When asked about a stimulus package totaling about $100 billion, he said the impact could be “significant,” not “window dressing.”
Temporary equipment tax write-off provisions for businesses also could spur spending, Bernanke said. But he warned: “I hope Congress can resist having a huge list of things” that would weigh down legislation and not help the economy in the short run.
In his testimony, Bernanke again pledged to aggressively slash a key interest rate as needed to bolster the economy. Many economists believe the Fed will lower its key rate, now at 4.25 percent, by a bold half-percentage point at its next meeting on Jan. 30. Some critics on Wall Street and elsewhere have second-guessed Bernanke for not taking action sooner and more forcefully.