In a rare display of election-year bipartisanship, the Bush administration and House leaders agreed Thursday on a $150 billion economic stimulus package that would send tax rebates to 117 million American families by spring.
With a possible recession looming, both sides made concessions that they normally might not have made, acting out of apparent fear over being punished by voters for doing nothing. And they did it swiftly, reaching an accord in less than a week of negotiations.
The proposal, which still has to pass muster in the Senate, would send slightly more than $100 billion in rebates to individuals, including many who paid no taxes last year, and provide nearly $50 billion in tax incentives for businesses, chiefly through faster tax write-offs of investments.
Whether it will stimulate the economy is open to question. Much depends on how quickly the money gets into Americans’ pockets and to what extent people spend or save the extra few hundred dollars they’ll receive from Uncle Sam.
The vast majority of taxpayers would receive tax rebates, totaling $600 for individuals and $1,200 for couples, plus another $300 for each child, with no limit on the number of children. Those earning under $75,000 ($150,000 for couples) would receive the full rebates. Rebates would gradually phase out for those earning more than these income limits.
In a big concession to Democrats, the administration agreed to provide rebates to Americans who paid no income tax last year, as long as they earned at least $3,000. But their rebates would only be $300, and double for couples. They also would get another $300 per child.
Democrats gave ground too, backing off proposals to extend unemployment compensation past the current 26-week limit and to expand the food-stamp program. Senate Democrats will push for restoration of these provisions, said Sen. Dick Durbin (D-Ill.).
The administration’s chief negotiator, Treasury Secretary Henry Paulson, dodged reporters’ questions at the White House over whether Bush would go along with such additions in the Senate. “Our work is far from over,” he said.
Not all Democrats happy
Some House Democrats were unhappy with Speaker Nancy Pelosi for agreeing to drop the extra employment benefits and food-stamp increase from the legislation. Rep. Charles Rangel (D-N.Y.), chairman of the House Ways and Means Committee, said, “I do not understand, and cannot accept, the resistance of President Bush and Republican leaders to including an extension of unemployment benefits for those who are without work through no fault of their own.”
Pelosi said, “I can’t say I’m totally pleased with the package, but I do know that it will help stimulate the economy. But if it does not, then there will be more to come.”
Though Pelosi promised quick action, the Senate always moves with more deliberation, though senators will face the same political pressures as the House and the White House in coming together on a package. Paulson said the government could begin sending checks 60 days after final passage, excluding another two weeks in April in which the Internal Revenue Service will be preoccupied with a flood of annual tax returns. “Speed is of the essence,” he said.
But it could take 10 weeks to mail all the checks, he said, causing some to speculate it could be June or later before everyone gets their checks. Some economists said that could be too late to head off a recession that could be starting in the current quarter.
Durbin also emphasized speed, saying Congress should pass the measure and get it to President Bush as soon as possible. “The futures of millions of American families and the health of our economy are on the line.”
Political analysts said the bipartisan accord on the stimulus package is an exception that likely will not be repeated on most other legislation. “Don’t look for it to extend to other issues on which the parties remain polarized,” said Brookings Institution scholar Thomas Mann.
“This was a marriage of convenience,” said Democratic political consultant Jim Duffy. “Both parties had shotguns to their heads, and they said to one another, ‘We had better get married before someone pulls the trigger.'”
Stephen Wayne, a political science professor at Georgetown University, added, “This is the one deal in which the political incentives are the same for Democrats and Republicans.”
At the White House, Bush said the plan provides “an effective, robust and temporary set of incentives that will boost our economy and encourage job creation.” He added that the agreement “was the result of intensive discussions, many phone calls, late-night meetings, and the kind of cooperation that some predicted was not possible here in Washington.”
The tax-rebate plan is the government’s latest response to a housing-induced credit crunch that has tightened credit conditions in many markets and slammed financial markets, raising fears of a worldwide downturn. The Federal Reserve slashed interest rates three-quarters of a percentage point earlier this week and is expected to announce another cut next week.
Loan limits change
The stimulus package contains several features designed to improve the troubled housing market.
It would increase the Federal Housing Administration’s loan limits from $362,000 to $729,750 and those of two federally sponsored entities, Fannie Mae and Freddie Mac, from $417,000 to $729,750. The FHA insures private loans made by FHA-approved lenders, while the other two buy and sell loans in the secondary market.
The measure would also enable the FHA to become more active in dealing with the direct impact of the housing crisis, permitting more borrowers facing defaults to refinance subprime loans through the federal agency.
Businesses would be able to take an immediate tax write-off for 50 percent of the purchase price of manufacturing facilities and other capital equipment. Small firms could write off $250,000 in new and used tangible property in the year it is purchased.
As for the rebates, there is conflicting evidence and opinion on whether the majority of the money will be spent or saved.
Rudy Penner, a former director of the Congressional Budget Office, said the bulk of the money would be saved and not do much to stimulate the economy. Barry Bosworth of the Brookings Institution said that most of it would be spent. But Bosworth said he’s worried that the rebates would come too late to do much good.
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wneikirk@tribune.com
