WASHINGTON – President Bush called Friday for a $145 billion stimulus package centered on tax breaks for consumers and businesses to rejuvenate the economy, a move that drew bipartisan praise on Capitol Hill but failed to boost confidence on Wall Street.
The broad principles Bush outlined opened a path to an agreement with congressional Democrats that could come as early next week and put as much as $800 in each taxpayer’s pocket by spring, according to both sides. Bush dispensed with one of the thorniest obstacles to a quick deal by agreeing not to link it to his long-standing quest to make his first-term tax cuts permanent.
“By passing an effective growth package quickly, we can provide a shot in the arm to keep a fundamentally strong economy healthy,” Bush said at the White House. He then flew by helicopter to Frederick, Md., to tour a lawnmower manufacturing plant, where he predicted a bipartisan accord. “I believe we can come together on a growth package very quickly. We need to. We need to get this deal done and get it out and get money in the hands of our consumers and our small business owners to help this economy.”
The reaction in Congress revealed a divide between Democrats on the campaign trail, who assailed Bush’s proposal, and those in Washington, such as House Speaker Nancy Pelosi of California, who expressed optimism an agreement can be reached.
On Wall Street, however, the president did little to assuage nervous investors, who are increasingly fearful about the possibility of a recession amid a severe housing crunch, high energy prices and stagnant job growth.
All major U.S. stock indices finished the day lower.
Bush also drew sharp criticism from Democratic presidential candidates, who accused him of neglecting 50 million low-income workers who do not pay income taxes. Sen. Hillary Rodham Clinton, of New York, said Bush’s proposal “makes no sense,” while Sen. Barack Obama, of Illinois, said it would “leave out tens of millions of working Americans” and former Sen. John Edwards, of North Carolina, said Bush was “making matters worse.”
But on Capitol Hill, Pelosi, Senate Majority Leader Harry Reid, of Nevada, and other Democratic leaders welcomed Bush’s statements. Even Reid, who complained Thursday about Bush’s plans to speak publicly Friday, was satisfied that the president moved closer to compromise, an aide said.
Bush was careful to leave options open as he outlined his general principles for a stimulus package. To be big enough to have an effect, he said it should be about 1 percent of the nation’s gross domestic product, or $140 billion to $150 billion, and it should be built on tax incentives rather than infrastructure spending that would fail to pump money into the economy fast enough. He said relief should be temporary and take effect right away and it should not be paid for by increasing other taxes. But in a bow to Democrats, he agreed to leave for another day the fight over extending the tax cuts he pushed through in 2001 and 2003.
Under the plan the two sides are discussing privately, according to officials speaking on condition of anonymity, the 10 percent income tax bracket would be reduced to zero for one year, meaning single workers would not pay any tax on the first $8,025 of taxable income nor would a married couple pay anything on the first $16,050. That would save them $800 or $1,600, respectively. The money would be sent to taxpayers right away in the form of rebate checks.
A sticking point is what would happen to workers who file but make too little to pay income taxes. Treasury Secretary Henry Paulson said Bush wants “broad-based tax relief for those who are paying taxes,” implying that those who do not would receive no benefits. About 50 million workers make too little to pay income taxes, although they do pay Social Security and Medicare taxes. The Center on Budget and Policy Priorities estimated that a family of four making less than $24,900 would get nothing under such a formula.