TBO.com - TBO is Tampa Bay Online

Bush Calls For Quick Tax Relief

ADVERTISEMENT

By STEVEN R. WEISMAN and EDMUND L. ANDREWS, The New York Times

Published: January 19, 2008

WASHINGTON - In trying to assemble a bipartisan package to jolt the slumping economy, the White House and Congress have turned to familiar tools that experts say have worked in the past. But there is also a lively debate among economists about which measures will best accomplish the goal.

The favorite template for addressing recession fears is a set of tax measures and spending initiatives passed in 2001 and 2002, including a personal income tax rebate in the summer of 2001 that was between $300 to $600 per household and a tax incentive the following year to encourage businesses to invest in new plants and equipment.

President Bush highlighted both those basic approaches on Friday in setting out his principles for a deal with Congress to address the current downturn.

He suggested about $150 billion in tax relief for individual taxpayers and small businesses.

Economists said a reasonable range for tax cuts in the new package might be $500 to $1,000. Congressional aides said the White House plan is looking at rebates of up to $800 for individuals and $1,600 for married couples.

Democrats are also likely to seek increased spending for programs such as unemployment insurance or to funnel more money to states, an approach that Bush signaled he would oppose.

"The research I've seen indicates that the programs in 2001 clearly worked," Treasury Secretary Henry Paulson said, referring to the tax measures. "They worked quickly, and people spent the money they got. The thing we should be looking at now is how to make them even more effective."

Officials Hope Rebates Will Be Spent Fast

The nonpartisan Congressional Budget Office reported this week that each of the three elements of the 2001-02 stimulus - personal tax rebates, incentives for business investment and government spending programs - played a role in boosting the economy.

Paulson said he and his colleagues first began re-examining the 2001 experience before Christmas, drawing lessons for a contingency proposal if the economy continued to decelerate. The drafting of the principles put forward by Bush on Friday began two weeks ago.

Personal tax rebates are intended to put cash in the hands of consumers, in the hopes that they will spend it immediately, giving a boost to stores, service providers and manufacturers of consumer goods, rather than saving it or using it to pay down debt.

Incentives for business investment are intended to prompt companies to accelerate plans to buy new equipment, increasing demand for that type of product and helping to forestall employment losses or spur new hiring.

All indications are that the likely package to be voted on will be a hodgepodge, but experts say that is not bad.

Economists: Combination Approach Good

Ben Bernanke, the Federal Reserve chairman, testified Thursday before the House Budget Committee that because there was disagreement among specialists on what works, it might be best to adopt a mixture.

"A program that combined a number of elements might in some sense address the problem from a number of different angles and be more effective than one that was only a single element," he said.

Stimulus packages of the less recent past are often cited as examples of how not to make policy.

Economists say that in the recession of the mid-1970s, spending and tax cut measures were enacted too slowly, having an effect only after the economy had already picked up. In 1992 and 1993, partisan squabbling derailed plans for a stimulus package as the recession came and went.

The measures seven years ago sent a different lesson, according to John B. Taylor, a professor of economics at Stanford University and former Treasury official under Bush. "People look back at 2001 and are more positive about this kind of approach," he added.

There continues to be a debate among economists about how best to give a kick to the economy.

1-Time Only Fix May Not Be As Effective

The Congressional Budget Office, for example, said that temporary, one-time-only changes in tax policy may have only a moderate effect relative to permanent changes, such as lower income tax rates.

Consumption jumped after the implementation of the tax rebate in 2001, it said, but researchers cannot be sure that it was because of the rebate or the passage of the long-term tax cuts at the same time.

Many economists say that a drawback to Bush's proposals is that they might not put cash in the hands of people most likely to spend it: those at the lower end of the income spectrum.

Bush signaled he would limit rebates to people who pay federal income taxes, and many low and middle income people pay little or no federal income tax.

Robert Greenstein, executive director of the Center on Budget Policy and Priorities, is urging that the tax rebate be in the form of a credit for children, or some form of credit for the Social Security taxes they pay.

Without such improvements, he said, Bush's plan "would save fewer jobs and do less to shore up a weak economy than it should."

Information from The Associated Press was used in this report.

Loading Comments...

Email Print

ADVERTISEMENT