Stimulus bill hits Senate this week
A bipartisan accord in the House calls for a $150 billion spending plan, including significant tax rebates. But senators may want add-ons.
from the January 28, 2008 edition
Page 2 of 3
Other economists are not so sanguine, but they say the fiscal stimulus will help give the economy a jolt in the second quarter, which starts in April. The package could mitigate the effects of the downturn or jolt the economy out of it, says economist Mark Zandi of Moody's Economy.com.
Congress and the Fed may yet have some leeway because the economic indicators are not yet tilting toward recession. For example, new claims for unemployment remained steady at 300,000 for the week ending Jan. 19, the Department of Labor reported Thursday. This indicates that so far there are no widespread layoffs, says economist Bob Brusca of Fact and Opinion Economics.
In December, concerns heightened that the economy had already slipped into recession because new jobs grew at a low rate and unemployment jumped to 5 percent. "So far it looks like January is reversing some of the dim economic statistics from December," said DeKaser.
However, existing sales of homes dropped 2.2 percent in December and were down 12.8 percent for all of 2007. Median home prices dropped 1.8 percent for the year, the first nominal decline in any year since the Great Depression.
The tax-rebate package includes a one-year temporary increase in the loans that can be purchased by Fannie Mae and Freddie Mac. Both of them could buy loans up to $625,000, up from $477,000 currently. This should help spur mortgage lending in states such as California and Florida, where high real estate prices have held back lending.
A sense of urgency aids deal
The deal worked out by bipartisan House leaders and Treasury Secretary Henry Paulson represents significant compromises across the board for a Congress typically in gridlock.
Republicans agreed to recalibrate the program to include more lower-income families, while Democrats gave up cherished spending programs.
Democrats also urged and won relief for families caught up in the subprime mortgage debacle and expanded the plan to include wage-earning households that do not file income taxes.
Republicans claimed credit for including tax relief for employers, including a 50 percent bonus deduction on new equipment, and for holding the line on extraneous spending and tax hikes.
"I can't say I'm totally pleased with the package," said Speaker Pelosi in a briefing announcing the deal on Thursday. "Let us praise this for what it does and not disrespect it for what it does not: It is timely, targeted, and temporary, and it was done in record time since our conversation with the president [on Tuesday]."
While Senate leaders say they will give the House plan thorough consideration, even strong objections to the proposed plan are taking a back seat to the sense of urgency on Capitol Hill to be seen doing something on a front-burner issue.
"I'm not enthusiastic about rebates for people who don't pay income taxes, but if that's what it takes to get a bipartisan compromise, I'll probably support it," said Sen. Chuck Grassley (R) of Iowa, the ranking Republican on the Senate Finance Committee. "I'm not taking anything off the table."
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