Congress Unites on Economic Stimulus Package

The $150 billion proposal is a start, but it falls short of the immediate help the U.S. needs.
Author:
Publish date:

Updated from 3:04 p.m. EST

Treasury Secretary Henry Paulson, House Speaker Nancy Pelosi and Minority Leader John Boehner today agreed on an economic stimulus plan. The plan is the result of several days of hard negotiating.

The plan, however, may be similar to other plans initiated by the Bush Administration --too little and too late.

Much of the stimulus will come in the form of one-time tax rebates to individual tax payers -- to the tune of $100 billion. According to The Associated Press, 117 million families will receive rebates. Individual taxpayers will receive $600; families will receive $1,200 with an additional $300 per child.

Fed Stimulus Package DOA

var config = new Array(); config<BRACKET>"videoId"</BRACKET> = 1389988316; config<BRACKET>"playerTag"</BRACKET> = "TSCM Embedded Video Player"; config<BRACKET>"autoStart"</BRACKET> = false; config<BRACKET>"preloadBackColor"</BRACKET> = "#FFFFFF"; config<BRACKET>"useOverlayMenu"</BRACKET> = "false"; config<BRACKET>"width"</BRACKET> = 265; config<BRACKET>"height"</BRACKET> = 255; config<BRACKET>"playerId"</BRACKET> = 1243645856; createExperience(config, 8);

An additional $50 billion has been agreed to for business tax cuts. The plan would allow corporations and small businesses to write down 50% of the purchase of capital equipment now, rather than wait for it to depreciate much more slowly over time. This may spur business investment.

The plan also offers help for the mortgage crisis. It lifts the limit on the Federal Housing Administration loans to approximately $725,000. The previous limit had been $362,000 and $417,000 for

Fannie Mae

(FNM)

and

Freddie Mac

(FRE)

. According to a report on CNBC, Rep. Barney Frank's Finance Committee will soon release the details. Levels may be set based upon local housing markets. This would make sense considering home prices are much higher in places like California and New York as compared to Michigan or Texas.

Many economists have said that favoring low- and middle-income earners would create the most likely immediate stimulus. Low-income earners remain less likely to save.

The Wall Street Journal

recently reported that many of the tax rebates in 2003 went towards savings, not spending. Time will tell how helpful tax rebates prove to be. The plan announced today will help 35 million low-income families, according to the AP.

A particular sticking point between Democrats and Republicans had been low-income earners who don't pay taxes but who need help. The agreement gives a $300 rebate to people who earn more than $3,000 but don't pay taxes. More than 70% of the rebates will go to those who pay taxes.

A significant problem with the plan would be timing. Checks would not be mailed out to taxpayers until the earliest as of June of this year -- that's almost six months from now. It's not even clear what effect this would have on individuals who are self-employed.

What the Congress should do is authorize an immediate rebate to ensure that checks go out as soon as the bill passes Congress. The economy needs the stimulus now -- not six months from now. If the economy had time to wait, then the government could just wait for the Federal Reserve rate cuts to take effect.

Furthermore, the plan offers no help to states. States and local municipalities already face the specter of decreasing tax revenues from declining property values. Some states need help more than others depending on the volatility of the local housing market and the saturation of subprime lending.

The plan will be submitted to the Congress immediately. With any luck, the Congress will have the common sense to modify the plan to work it into a more immediate stimulus, or face the very real possibility that the stimulus will come too late to help a faltering economy.