Economic stimulus, Round 2?
Rumblings about a possible second boost prompt economists to look at alternatives to the 'tax rebate.'
No one can remember the last time Congress enacted two major economic stimulus packages in one year. But 2008 may see a sequel to the $100 billion worth of checks that started filling individuals' bank accounts in early spring.Skip to next paragraph
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Democrats say they will proceed this fall with a "Son of Stimulus." Whether it materializes is questionable; President Bush currently opposes such a move, preferring to wait to see the full effect of the first stimulus package.
As for economists, some say it's a good idea, if done differently from Round 1, but many are skeptical that money can start to circulate through the economy quickly enough. One reason for their concern: Surveys are finding that a major chunk of the money already doled out is going into savings instead of spending.
The impetus for Congress, besides the election year, is a US economy that is not expected to show much change from its current weak conditions by the time lawmakers return from their August recess. The unemployment rate may be trending higher. Energy prices, one driver of inflation, are likely to remain relatively high at least until the end of hurricane season in late November. While new housing starts may be showing signs of stabilizing, home values could still be falling.
Some budget watchers say Congress is unlikely to act unless the economy is in crisis.
"There would have to be an unambiguous perceived need, such as a big stock market drop, a major bank failure, or something that would scare the members," says Stanley Collender, a budget expert and managing director at Qorvis Communications in Washington. "And it would have to be called a tax cut instead of a spending increase."
Some in Congress began weighing an additional spending package in February after Bill Gross, head of PIMCO, a mega-investment manager, suggested the need for a permanent $300 billion to $500 billion spending program.
"To provide a stable recovery path, government spending needs to fill the gap – not consumption," he wrote back then.
If Congress could agree on a second stimulus package, it's not clear how soon the benefits would actually start pulsing through the economy.
"Say they do pass a package in October," says Mr. Naroff. "The Treasury won't start sending out a set of checks until the beginning of next year, and they won't get spent until February, March, and April."
Some economists expect the economy will still be weak next year and in need of a boost.