President offers plan to jump-start sagging economy

1/19/2008

WASHINGTON President Bush yesterday called for a $145 billion stimulus package centered on tax breaks for consumers and businesses to rejuvenate the lagging U.S. economy, a move that drew unusual bipartisan praise on Capitol Hill but failed to boost confidence on Wall Street.

The broad principles that Mr. Bush outlined opened a path to an agreement with congressional Democrats that could come as early as next week and put up to $800 in each taxpayer's pocket by spring, according to both sides.

Mr. 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," Mr. 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 Mr. Bush's proposal, and those in Washington, such as House Speaker Nancy Pelosi of California, who expressed optimism that an agreement with the White House 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.

More bad news hit the corporate world yesterday, including an announcement by Sprint Nextel of Reston, Va., that it is cutting 4,000 jobs after massive customer defections and a decision by Fitch Ratings to downgrade the country's second-largest bond insurer.

All of the major U.S. stock indices finished the day lower, with the Dow Jones industrial average of 30 blue-chip stocks down 59.91, or 0.5 percent, to 12,099.30. The broader Standard & Poor's 500-stock index shed 8.06, or 0.6 percent, to 1,325.19, while the technology-driven Nasdaq Composite index fell 6.88, or 0.3 percent, to 2,340.02.

Mr. Bush drew sharp criticism from Democratic presidential candidates, who accused him of neglecting 50 million low-income workers who do not pay income taxes.

But on Capitol Hill, Ms. Pelosi, Senate Majority Leader Harry Reid of Nevada, and other Democratic leaders welcomed Mr. Bush's statements. Even Mr. Reid, who complained Thursday about Mr. Bush's plans to speak publicly yesterday, was satisfied that the President moved closer to compromise, an aide said.

"There's lots of room for common ground," said Rep. Chris Van Hollen (D., Md.), a member of the House Democratic leadership. "There's an opportunity to put ideology aside and come together behind a common policy. There's a lot of room here for things to go wrong, but at the moment, everyone's on the same page."

Indeed, officials on both sides of Pennsylvania Avenue were using the term "kumbaya" to describe the rare consensus developing after a year of partisan warfare.

By the end of the day, the contours of a possible accord were coming into focus. Both Mr. Bush and the Democrats want a one-time tax rebate, and officials said a compromise package could also include the tax incentives for business investment that the President wants plus the social welfare spending such as extended unemployment benefits that Democrats want.

Mr. 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 Mr. 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.

But administration and congressional officials privately suggested this was an area for possible compromise.

Mr. Paulson said Mr. Bush's goal in making his announcement yesterday

was "to put forward the outlines and parameters and principles of a program so as to speed the process along but not to be so definitive that it discourages collaboration and a bipartisan approach."

Mr. Paulson planned to make telephone calls over the weekend and congressional aides said they hoped Mr. Bush could reach agreement with Ms. Pelosi and Mr. Reid during a White House meeting scheduled for Tuesday to discuss his Middle East trip.