Momentum builds for economic stimulus package
Bernanke's testimony bolsters support for quick action from Republicans and Democrats.
After 12 months of partisan firefights in Washington, peace is breaking out on at least one front: the quest for a quick fix for the nation's economy.
The stimulus plan taking shape in Congress is likely to include targeted tax cuts and rebates for middle- and low-income Americans, tax breaks for business, and spending for unemployment insurance and food stamps. Lawmakers are talking about a stimulus package in the $100 billion to $150 billion range.
The plan gained important momentum Thursday when President Bush announced his support of the concept through a spokesman, and Ben Bernanke, chairman of the Federal Reserve, embraced the idea in testimony before the House Budget Committee.
The biggest breakthrough, however, came from Capitol Hill, where Democratic and Republican leaders, who rarely sit down to negotiate or even talk, quickly set aside two of the biggest obstacles to a deal this week.
Democratic leaders signaled that they would deal separately with controversial proposals to help delinquent homeowners caught in the housing crisis if they delayed the passage of a stimulus plan. GOP leaders said they would not insist on an extension of Mr. Bush's tax cuts, set to expire in 2010.
One factor driving the new consensus is the nation's economic downturn and the need for speed to help avert a recession.
"The downside risks to growth have become more pronounced," Mr. Bernanke said at the House hearing.
Another driver is the election year and the need for politicians to be seen doing something about the crisis.
"A stimulus plan gives an opening to provide benefits to targeted constituencies, and the targeting is political as well as economic," says John Pitney, a political scientist at Claremont McKenna College in Claremont, Calif. "In this, they are incumbents first, Republicans and Democrats second," he adds. Cutting a deal on a stimulus plan "is an opportunity to be seen as acting, rather than partisan."
Lawmakers on both sides of the aisle say that a key to the proposed stimulus plan is that it be done quickly. "We believe strongly that we have to have a stimulus package that is timely, that is temporary, and that is targeted," said Sen. Charles Schumer (D) of New York, who chairs the Joint Economic Committee, on Wednesday.
"The programs themselves are less important than how quickly the money gets into the economy," he said, in a press briefing after the hearing.
Questioned on how quickly Congress would have to move on a stimulus plan, Bernanke said: "In order for this to be effective you need to be able to move very quickly. If you have rebates to consumers, there are some technical issues on how quickly the IRS could gear up to do this."
Some lawmakers worry that the rush to pass a plan could lead to bad policy. Moderate Democrats worry that a stimulus plan may be at the expense of long-term health of the economy.
"I'm a Blue Dog Democrat in the House, and budget deficits and fiscal discipline are something that are very important to me," said Rep. Baron Hill (D) of Indiana at Wednesday's Joint Economic Committee hearing. In the rush to complete spending bills last year, Congress set aside its own rules to approve no spending without finding ways to offset it through taxes or spending cuts, he pointed out. "And here we are getting ready to do it all over again with this fiscal stimulus package, and I'm troubled by it."
After a meeting of the Blue Dog coalition on Wednesday, some members said that they were satisfied that concerns for fiscal discipline could be met if Congress committed to offsetting the costs of the fiscal stimulus plan in the next three to five years.
"I would like to see us pick a reasonable period of time to pay for a stimulus package," says Rep. Adam Schiff (D) of California, a member of the House Appropriations Committee. Congress can't stimulate the economy by adding funds if, in the same year, it offsets the spending, he says.
"But we don't want to take long-term tax breaks that people here have talked about for years and package them as a stimulus plan. It needs to be temporary and targeted on people who put money back into the economy," he adds.
Some GOP conservatives say that this may be the last chance in the 110th Congress to permanently extend the Bush tax cuts, which are set to expire in 2010. "Let us not assume that 2010 is so far in the future [that] it's not affecting decisions today," said Sen. Robert Bennett (R) of Utah, a member of the Joint Tax Committee, who favors extending the tax cuts as part of a stimulus package. With the highest corporate tax rate of any developed nation, the prospect of big tax hikes in two years has to be a part of "the kind of long-term economic thinking we need to do," he added.
Democratic and Republican leaders of the House and the Senate opened discussions with Bush on a conference call Thursday. Talks over the stimulus plan will continue in a White House meeting next Tuesday. House Speaker Nancy Pelosi says that she hopes to have the particulars of an agreement coming out of that meeting.
"My confidence springs from the fact that it’s so urgent for the American people," she said in a press briefing Thursday. "I hope that one month from now, we will be watching the effects of the legislation we have passed."