Economic stimulus, Round 2?

"The downside risks are significant. Another well-timed and targeted stimulus package would be helpful," says Mark Zandi, chief economist at Moody's Economy. com.

Last week, House Speaker Nancy Pelosi, after meeting with economists, seemed to indicate any stimulus package would be aimed at lower- to middle-income Americans.

"Even though we believe the initial public rebates had a positive impact, it is certainly not enough to offset the rising prices in gasoline, in food, in fuel, in healthcare, in education … while the purchasing power of Americans' income has gone down," she said at a press conference.

Not all economists, however, are convinced that the tax rebate, as this year's handout was called, has been that effective.

University of Michigan economists Joel Slemrod and Matthew Shapiro are researching what taxpayers are doing with their checks – $600 per individual and $1,200 for couples filing jointly.

"So far, we're finding that 20 percent of the people say the rebate led them to spend more," says Dr. Slemrod, who teaches at the Stephen M. Ross School of Business. "That's about what we found for the tax rebates of 2001."

Data indicate a significant portion of the rebate checks is going into savings, Slemrod says. In May, the personal savings rate soared to 5 percent, up from 0.4 percent the month before.

"If you convert that to dollars, you see the jump in savings is about the same magnitude as the stimulus checks in May," he says.

The economist says he has a "wait-and-see" attitude about a second round of stimulus. "I'm not sure we would want to do a second dose the same [way] as the first dose," he says.

Mr. Zandi agrees on the need to try something different. He would consider a payroll-tax holiday for a period of time. This is an immediate cash benefit, particularly for small business and workers who don't earn enough to pay taxes, and is easily implemented, writes Zandi in an e-mail.

"The biggest perceived downside is that payroll-tax revenue goes into the Social Security Trust Fund," he writes, adding that this problem can be resolved by moving money from the general fund to the trust fund.

In addition, Zandi would consider a federal gasoline-tax holiday, an expansion of the food-stamp program, aid to state governments for their Medicaid bills, and maybe some infrastructure spending if a good list could be drawn up quickly.

"It would be all temporary, not permanent, and would run $50 billion to $100 billion," he says.

Economist Robert Gay of Fenwick Advisers in Rye, N.Y., says the economy may well need some form of fiscal stimulus. But the consumer should not be the targeted beneficiary, he argues. "Why not prime a pump that would continue to run?" he asks. One area of spending, he suggests, is alternative energy or improving the electric grid. "Go at the heart of the issue," he argues.

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