Congress keen on economic stimulus
By MARILYN GEEWAX
The Atlanta Journal-Constitution
Published on: 01/17/08
Washington — With economic news growing bleaker by the day, leaders in Congress pledged Wednesday to work together to quickly brighten the outlook.
"Help is on the way," Sen. Edward Kennedy (D-Mass.) said after a hearing where former Treasury Secretary Lawrence Summers recommended that the government spend up to $150 billion to ward off a potentially "long and severe" recession.
"We are prepared to take action," Kennedy said following Summers’ testimony.
House leaders also are worried about the economic damage being done by rising oil prices, a slumping housing market and a credit crunch. After a meeting with House Minority Leader John Boehner (R-Ohio), House Speaker Nancy Pelosi (D-Calif.) said she is "optimistic" that action will come soon.
Boehner told reporters that they had reached "an agreement that we will work together to try to bring forward a package that truly is stimulative."
The leaders plan to meet Tuesday with President Bush to discuss their ideas.
Despite the assurances of bipartisan cooperation, it’s not yet clear whether Bush and Democratic-led Congress will be able to agree because of a split over tax policy.
Top congressional Democrats are calling for tax rebates aimed at low- and middle-income workers, as well as more food stamps and home-heating aid for struggling families. They also want construction projects to create jobs and additional unemployment benefits, and transitional health care coverage for workers losing their jobs.
"For millions of families, the recession is already here," Kennedy said at the Joint Economic Committee hearing. "Our plan should be focused on average Americans facing tough times."
Bush’s economic stimulus plan, expected to be unveiled in his State of the Union address on Jan. 28, likely will focus on making permanent his 2001 income tax cuts, which otherwise will expire by 2011.
William Beach, an economist with the Heritage Foundation, a conservative research group, praised Bush’s approach.
"There are projects, new businesses and expansions of existing businesses that would be undertaken today if Congress signaled that taxes would be lower in three years," Beach said.
"Since nearly all major capital undertakings last beyond this three-year period, it is likely that making all or most of the Bush tax reductions permanent would stimulate economic activity today as well as in 2011," he said.
Kennedy dismissed such assertions.
"We need to get money into workers’ pockets in 2008 to encourage spending and boost the economy," he said. "What we don’t need are long-term tax cuts that will drag our economy down in future years."
At a news conference after the hearing, Sen. Charles Schumer, the New York Democrat who chairs the Joint Economic Committee, agreed with Kennedy that renewing expiring tax cuts would not help the economy.
Schumer argued that if Congress were to extend all of the cuts indefinitely, the U.S. budget deficit would worsen, forcing the government to issue more bonds. To attract people to invest in those new U.S. securities, the Treasury would have to raise interest rates, and higher rates would only hurt consumers and homeowners, he said.
Instead, Congress should act within weeks to complete a stimulus package that is timely, targeted and temporary, Schumer said.
Schumer said he spoke by phone on Monday with Federal Reserve Chairman Ben Bernanke, who agreed "that fiscal stimulus is certainly needed."
Summers, who served as Treasury chief in the Clinton administration and is now a Harvard economics professor, told lawmakers that he previously had suggested government spend $50 billion to $75 billion to boost the slowing economy.
But he said that in recent weeks, employment growth has slowed so dramatically that spending may have to total twice his original recommendation to have an impact.
"The risks here of ‘too little, too late’ are far, far, far greater than the risk of ‘too much, too soon,’ " Summers said.
A report released Tuesday by the nonpartisan Congressional Budget Office said stimulus proposals aimed at low- and middle-class families would be most helpful.
"Lower-income households are more likely to be credit constrained and more likely to be among those with the highest propensity to spend," it said.
