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Bush urges $140 bn economic stimulus

world Updated: Jan 19, 2008 02:15 IST
Rob Lever
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US President George W Bush called on Friday for Congress to act quickly on a stimulus plan worth around 140 billion dollars to revive an economy that some fear is on the brink of recession.

Bush's announcement came amid a growing consensus on the need to enact a plan to help stave off a downturn with a stimulus program based on tax rebates and breaks for businesses.

"Our economy has a solid foundation, but there are also areas of real concern," Bush said in a White House announcement aimed at providing the outline for a stimulus plan.

"After careful consideration and after discussions with members of Congress I've concluded that additional action is needed to keep our economy growing and creating jobs."

He added, "Congress and the administration need to work to enact an economic growth package as soon as possible."

Bush said the package "must be big enough to make a difference in an economy as large and dynamic as ours, which means it should be about one percent of GDP."

Treasury Secretary Henry Paulson said that on that basis, the package should be "in the neighborhood" of 140 to 150 billion dollars.

"The package should be robust enough to make an impact this year, and should be temporary so that it doesn't impact our long-term fiscal position," Paulson said.

Some lawmakers and officials are pressing for tax-rebate checks of at least 300 dollars per taxpayer, with some lawmakers seeking as much as 800 dollars per person or 1,600 dollars per household, in addition to various business tax breaks.

With recession fears rising fast, Bush and Republican lawmakers appeared willing to make a big concession to Democrats by accepting legislation that did not include an extension of Bush's tax cuts, which the White House has been seeking.

Democrats, meanwhile, signaled willingness to suspend their own budget rules and accept a tax break without first figuring out how to pay for it.

Bush said that he has consulted with lawmakers and added: "I believe there is enough broad consensus that we can come up with a package that can be approved with bipartisan support."

The news came amid the latest round of weak economic news and a downward spiral on Wall Street that prompted Federal Reserve chairman Ben Bernanke and others to talk up the need for swift action.

Speaking before Congress Thursday, Bernanke said a stimulus program of between 50 and 150 billion dollars would be "reasonable," but he said any program should be limited and temporary, and should be carried out rapidly.

"To be useful, a fiscal stimulus package should be implemented quickly and structured so that its effects on aggregate spending are felt as much as possible within the next 12 months or so," he told a House of Representatives budget panel.

A government report Thursday showed a steep 14.2 percent slide in US housing starts last month, capping a horrific year for housing.

A separate report showed a sharp decline in regional manufacturing, as measured by the Philadelphia Fed, which marked its worst showing since October 2001 and a sign of spreading economic troubles.

Reacting to the White House announcement, Harold McGraw of the Business Roundtable, an association of corporate chief executives, praised the effort.

The group "favors a balanced package of consumer- and investment-oriented tax reductions of a temporary nature to put the economy on a firmer foundation for restoring growth," McGraw said.

Nariman Behravesh, chief economist at the research firm Global Insight, said such a plan could help avert or minimize a potential recession.

"It will have an effect on the economy, assuming the impact is in the second or third quarter," Behravesh said. "It could prevent a recession."

But Robert MacIntosh, chief economist for Eaton Vance Corp., said the plans being discussed would be less effective than permanent tax changes.

"I can't see handing checks to people as being effective," he said. "All it does is increase the deficit."

Sal Guatieri, economist at BMO Capital Markets, said the stimulus could help offset the impact of the slump in housing.

"The more stimulus the better, because the US is teetering on the brink of recession," he said.