Tax Rebates Part of Plan to Jolt Economy

Jan 18, 07:42 AM

By Jeannine Aversa and Andrew Taylor

The Associated Press

WASHINGTON

United for urgent action, the White House and Congress raced toward emergency steps Thursday to rescue the nation's 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 more than 300 points, underscoring deepening concern about the country's economic health.

The scramble to take action came as fears mounted that a housing slump and credit turmoil could cause people to clamp down on their spending and businesses to put a lid on hiring, throwing the country into its first recession since 2001.

President Bush told congressional leaders privately that 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 could also 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 would likely 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 are due to 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 Bush would demand that any package be effective, simple and temporary.

Bernanke voiced his support for a stimulus package in an appearance before the House Budget Committee. He stressed that it must be temporary and must be implemented quickly - so that its economic effects could be felt as much as possible within the next 12 months.

"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 that 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 impact 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 were in agreement that they needed to cooperate to do something quickly, Perino said.

House Speaker Nancy Pelosi, D-Calif., has talked of a package totaling $100 billion or more. House Republican leader John Boehner of Ohio spoke of a bill on the range of $100 billion to $150 billion.

The rush to swing behind a stimulus plan underscored the political imperative of responding to growing concern about a recession.

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 said 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.

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 troubles 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 around $100 billion, he said the impact could be "significant," not "window dressing."

Temporary equipment tax write-off provisions for businesses also could spur spending, which would help the economy, 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 half-percentage point at its next meeting, on Jan. 30.

what's next

President Bush planned to lay out his position today. The White House said he would demand that any package be effective, simple and temporary.

House Speaker Nancy Pelosi, D-Calif., said she wanted legislation approved within a month. tax rebates All sides agree that tax rebate checks - likely to be more generous than the maximum of $300 for individuals and $600 for married couples in 2001 - would be in any final stimulus measure. The question is how they might be limited and whether to issue them to low-income workers who pay Social Security taxes but not income taxes as Democrats favor. People with children may get larger rebates. unemployment insurance Democrats want to extend unemployment benefits for people whose benefits run out after 26 weeks and may press to provide benefits to a wider range of people such as part-time workers. food stamps Democrats want to boost food-stamp benefits on the theory that low-income recipients of them will quickly spend that money. Republicans are opposed. heating subsidies Democrats are pressing to sharply boost heating subsidies for the poor. Some cold-weather-state Republicans are willing to go along, though party leaders are reluctant.

- The Associated Press

inside

The biggest drop in home construction since 1980.

Business

Stocks take another hit as Dow Jones plunges 300 points.

Business, pages 4-5

(c) 2008 Virginian - Pilot. Provided by ProQuest Information and Learning. All rights Reserved. Tax Rebates Part of Plan to Jolt Economy
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