As economy lags, what levers to pull?
Pressure is mounting for the US government to act soon to prevent a recession.
from the January 7, 2008 edition
Page 3 of 3
"There are a variety of options we can consider," White House economic adviser Edward Lazear said on CNBC Friday.
Bush is expected to comment further on the economy in a speech Monday. A proposal could take shape for Bush's State of the Union address in a few weeks.
What can a fiscal stimulus plan accomplish?
The general view of policy experts is perhaps something, but probably not a lot. The political backdrop is difficult, and so is the budgetary one.
Bush has already won large tax cuts. Meanwhile, in coming years the federal government faces a looming difficulty paying for all the spending commitments. That leaves politicians a bit less room to bring taxes down lower for short-term needs.
"What the Bush administration did [in 2001] was accelerate the tax cut by sending out the so-called rebate" checks, Ms. Rivlin says. "That had some effect."
Given the long-run fiscal challenges, she says Congress might insist that any fiscal stimulus be paid for at some point, and not simply add to government debt. "The Democrats have, rightly I think, put a lot of emphasis on fiscal responsibility and things being paid for."
Mr. Foster says one possible tax cut might be to make property taxes deductible from the federal income tax even for people who don't itemize their deductions. This would put money in many pockets. And assuming it was a permanent change, this move would bolster home values – a boon since foreclosure often occurs when a property's value falls below the borrower's loan balance.
Chad Stone, chief economist at the left-leaning Center on Budget and Policy Priorities, says any stimulus package should be carefully targeted to bolster consumer spending and help households most in need. Extending unemployment insurance and expanding food-stamp aid are two examples, he says.
Or, since states face pressure to curb spending during recessions due to budgetary constraints, Congress could provide aid to state and local governments. This might allow them to avoid cuts in Medicaid.
Another idea, floated by Harvard University's Mr. Feldstein, is a uniform rebate for each US taxpayer.
A key priority is timing. Both Feldstein and Mr. Stone support a policy with triggers, so that it goes into effect only if several months of data confirmed deep problems for the economy. Passing such a bill soon would ensure that help comes quickly if it is needed.
"There's a high risk of bad policy" or, more likely, no policy, Stone says. "We have to hope that the [consensus] forecast is correct – that we don't even go into a recession."
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