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Tax rebates eyed to stimulate economy

Democrats controlling Congress are looking at tax rebates, extended unemployment benefits and more food stamps to stimulate the sagging economy.
Republicans Debate
Presidential hopeful, Rep. Ron Paul, R-Texas, believes America is already in a recession and that it's going to get a lot worse.Mary Ann Chastain / AP
/ Source: The Associated Press

Democrats controlling Congress are looking at tax rebates, extended unemployment benefits and more food stamps to stimulate the sagging economy.

But even as momentum builds behind those ideas - with President Bush increasingly open to proposing a stimulus package later this month - the effort is fraught with election-year risks for both Democrats and Republicans.

Any politician who promises action on the economy had better deliver. Failure to enact those or other pump-priming measures, which is possible, will register with voters increasingly alarmed about their own well-being.

On the other hand, not trying is a losing strategy too. Democrats see little choice but to make the effort.

"There's a risk in doing nothing and a risk in doing something," said Illinois Rep. Rahm Emmanuel, who heads the House Democrats' campaign organization. "I'll take the risk of doing something for middle-class families versus the risk of doing nothing."

The White House also is examining broad-based tax rebates comparable to the $300-600 checks sent to taxpayers in 2001, as well as bigger tax breaks for businesses that invest in new equipment.

But Bush's advisers and Republicans are skeptical of new spending initiatives like extended jobless benefits and higher food stamp payments; or accelerating highway, bridge and other public infrastructure projects to address rising unemployment among construction workers.

Complicating the debate is the fact that Democrats and Bush also have a poor track record of working together.

Timely, temporary and targeted
Both sides insist that work on competing stimulus plans is just beginning and that no decisions have been made about what might be included. The White House says it's not a sure thing Bush will even propose a plan if upcoming economic data don't suggest a deepening downturn of the economy.

Expectations are growing, however, that some action on an economic stimulus bill is inevitable.

The mantra among Democrats and many economists is that any stimulus bill should be timely, temporary and targeted toward people most likely to funnel the money right back into the economy. As such, some Democrats are suggesting limiting tax rebates to lower-income and middle-class families and people with children.

"Our initiative will assist hard-hit families by promoting consumer confidence, economic growth and job creation," House Speaker Nancy Pelosi, D-Calif., said in a statement Tuesday. Pelosi promised help for the unemployed, people hurt by higher health care and spiraling energy prices, as well as those hit by the subprime mortgage crisis.

Democrats also are eyeing extending unemployment benefits beyond the 26-week limit and a temporary increase in food stamp benefits, Pelosi's spokesman, Brendan Daly, said. He cautioned that any decisions would be made only after lawmakers return to Washington next week.

Confrontation likely
Liberal economists say boosting food stamps is one of the most efficient ways of pumping money into the economy, an idea surprisingly embraced by GOP economist Martin Feldstein at a Brookings Institution forum on Thursday.

Still, the White House and Democrats are probably on a collision course. Bush is likely to resist social spending initiatives or efforts to restrict tax rebates to a relatively narrow segment of the public. He is sure to press to extend his 2001 and 2003 tax cuts - something Democrats promise to reject.

There's naturally a temptation to use the debate to score political points in this election year. Democrats, for instance, could provoke a veto clash. That's the course they took in last year's debate over expanding a popular health insurance plan for children.

The politics of stimulus
On the presidential campaign trail Thursday in Las Vegas, Democrat Hillary Rodham Clinton said Congress needed to take action to revive the economy and contain a mortgage crisis that she called an epidemic. The New York senator was to reveal details of her economic plan Friday.

"I'm going to do everything I can to promote what I think would be the best way to stimulate the economy," said Clinton, who has called for a 90-day freeze on foreclosures.

The economy also dominated the first portion of a Republican presidential debate Thursday night in Myrtle Beach, S.C. Fred Thompson, who advocates a cut in corporate taxes, said "we need to count on the Federal Reserve doing the right thing on interest rates" to keep the economy from tumbling into recession. He also said tax cuts enacted in recent years should be extended.

Former New York Mayor Rudy Giuliani also advocated tax cuts, and his campaign purchased an advertisement during the first commercial break in the televised debate that said he would send the largest tax cut in history to Congress on his first day in the White House.

Rep. Ron Paul said, "I believe we are in a recession. I believe it's going to get a lot worse."

With an economy that may be teetering on the edge of a recession, congressional Democrats see a need to deliver results rather than be viewed as seeking political advantage. That means limiting the wish list of liberal Democratic lawmakers if they are to get an agreement with Bush.

Senate Democrats have taken fewer steps toward fashioning a stimulus package. Their deliberations are made more complicated by Senate rules that effectively require GOP support for almost any bill. Many Senate Republicans are looking for an opportunity to extend Bush's 2001 and 2003 tax cuts beyond their scheduled expiration at the end of 2010.

Leaders in both parties also will have to deal with the deficit hawks in each. The idea behind the stimulus effort is to pump money into the economy, not to pump some in and suction out the same amount elsewhere in order to not add to the budget deficit.

Many Democrats have generally promised to live by a "pay as you go" rule against deficit-financed legislation. Some of them are still steaming over a decision to waive that rule last month when passing a one-year, $50 billion "fix" of the alternative minimum tax, and they're already resisting the idea of waiving it again for any stimulus package.