United for urgent action, the White House and Congress raced toward emergency steps Thursday to rescue the national economy from a possible recession, including tax rebates of $300 or more for many Americans.
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 306.95 points, underscoring deepening concern about the country’s economic health.
The sudden scramble to take action came as fears mounted that a severe housing slump and a painful credit crisis 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 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.
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 Friday, but he wasn’t expected to go into specifics. Press secretary Dana Perino said he 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 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.
“There is reason to be hopeful when the president recognizes there is a problem in the country,” House Speaker Nancy Pelosi, D-Calif., said afterward. She has talked of a package totaling $100 billion or more.
The rush to swing behind a stimulus plan underscored the political imperative of responding to a growing concern about the possibility of recession.
Senior aides to House Democrats and Republicans reviewed an emerging plan that included tax rebates for individuals — from $300 to as much as $800 — breaks for businesses and more money to help food stamp recipients and the unemployed. Additional aid to help states complete construction projects was also among the proposals under consideration, according to officials familiar with the discussions. They spoke on condition of anonymity, saying they did not want to pre-empt an eventual announcement.
House Republican leader John Boehner of Ohio 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.”
White House spokesman Tony Fratto said Bush does not believe a stimulus should be offset — or paid for — by any tax or spending changes elsewhere. Some deficit-hawk Democrats have pushed for one but it is not expected to be part of a package.
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 debacles 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 writeoff 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.
The fragile state of the economy has gripped Wall Street and Main Street and is a rising concern among voters. The situation has galvanized politicians — including those vying to be the next president — and poses the biggest test to Bernanke, who took over the Fed nearly two years ago.
Said House Budget Committee Chairman John Spratt, D-S.C.: “It has become increasingly clear that our economy is slowing down, entering a slump if not a recession.” Rep. Dan Lungren, R-Calif., likened a stimulus package to a “vitamin B-12 shot.”
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 bold half-percentage point at its next meeting on Jan. 30. Some critics on Wall Street and elsewhere have second-guessed Bernanke for not taking action sooner and more forcefully.