Congress weighs another stimulus

But this plan is likely to be aimed at people and areas hit hard by the slump.

With the economic outlook getting darker by the day, it looks increasingly likely that Congress will provide the economy with a flashlight.

A new stimulus package can't chase away the economy's gloom on its own. But after Fed Chairman Ben Bernanke endorsed the idea Monday, Congress has begun to seriously consider the outlines of a new economic boost.

"Momentum is building," says Rep. John Spratt (D) of South Carolina, chairman of the House Budget Committee. "The White House says it's negotiable and we know we need to do something."

What Congress ends up doing, says Mr. Spratt, is not likely to be a replay of this spring, when the US Treasury sent consumers about $100 billion in tax-rebate checks. Some economists question the effectiveness of that stimulus – a significant chunk went to pay down debt or into savings. It appears any new spending will be more targeted to people or areas of the economy that are suffering.

Spratt expects any new spending program to have three components:

•The extension of unemployment benefits and possibly food stamps from 39 to 52 weeks.

•A boost in infrastructure spending, despite the problems of getting the money to work quickly.

•Some relief for state and local governments facing tighter budgets because of lower tax receipts and rising Medicaid costs.

Spratt expects some members of Congress will want to include another round of tax-rebate checks to Americans. "If there is debate that is any good at all, I would not expect it to be a component," he says.

One of the reasons for Congress's hesitation on a new rebate program is that many Americans either used the rebate of $600 per individual and $1,200 per couple to reduce debt or bolster their savings. In surveys done this summer, economists Joel Slemrod and Matthew Shapiro of the University of Michigan found that only 20 percent of the people who received the rebates spent them. That is about the same as the tax rebates of 2001.

One exception to this could be people living paycheck to paycheck, says Mr. Slemrod. "But one might want to look at broader ways to stimulate the economy, such as payments to state and local governments to not postpone infrastructure projects."

Highway, bridge projects have strong backing

Boosting infrastructure spending has some bipartisan support. House Speaker Nancy Pelosi (D) of California pushed for such a program in September in a stimulus bill that passed the House but was blocked in the Senate. And some Republicans are voicing support. "Congressman Shays strongly believes we need to rebuild our energy, water, and transportation infrastructure," says David Natonski, a spokesman for Rep. Christopher Shays (R) of Connecticut. A key House committee will hold hearings on infrastructure spending next Wednesday.

But the Republican leadership has different ideas for the stimulus.

"Action to strengthen our economy is needed, and it should come in the form of pro-growth policies that create new jobs, lower energy costs, and protect taxpayers – not hundreds of billions in new government spending masquerading as 'economic stimulus,' " said a statement from House minority leader John Boehner on Monday.

While Spratt interpreted the White House statements as an indication it was willing to compromise, a spokesman for Mr. Boehner said in an e-mail that the White House message has been the same for weeks – that it is open to additional solutions "but the Dems' ideas aren't going anywhere."

The timing of any legislation is likely to have a political dimension, says William Beach, director of data analysis at the Heritage Foundation, a conservative think tank in Washington. "The House and Senate are framing it up but are unlikely to pass it this year because they will worry about a veto," says Mr. Beach. "This is likely to be done next year to give the incoming president – [John] McCain or [Barack] Obama – an early victory. February is the target month."

Spratt agrees a package is likely to take place after the election, which is less than two weeks away. But he says it could be passed during the lame duck session or held over to January to mesh with the next administration. He says Senator Obama has endorsed the concept of another fiscal program without being specific. Senator McCain's press office did not get back to the Monitor by deadline.

However, in a speech Monday, McCain lashed out at what he termed the explosion of government spending that he said "put us deeper in debt to foreign countries that don't have our best interests at heart." And, he said, "I'm going to make government live on a budget, just like you do."

The federal budget deficit this year could be close to $1 trillion, some budget analysts say, up from last year's $450 billion in red ink.

Total package could cost $300 billion

The ultimate size of any program is also unclear.

Fed Chairman Bernanke suggested any program be "significant." In testimony before Spratt's committee on Monday, Martin Bailey of the Brookings Institution in Washington called for a $200 billion to $300 billion spending program. During questioning, he suggested Congress start with $200 billion and then add another $100 billion if the economy needed it. He also warned against adding "ornaments" to the legislation, such as spending programs that would benefit an individual congressman's district but not the nation as a whole.

"I said it in a kind of light way but did not get a laugh from the members who were there," says Mr. Bailey.

Material from the Associated Press was used in this report.

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