Recession S.O.S. - goosing growth
Lawmakers are considering a host of options to stimulate the economy, and some may mean more for your bottom line.
NEW YORK (CNNMoney.com) -- You may be getting an extra few hundred extra bucks for your wallet this year courtesy of the federal government. And if you could spend it as fast as you get it, lawmakers would be most appreciative.
Rebate checks are just one of the ideas reportedly being considered by Democrats and Republicans to nip a potential recession in the bud.
Experts affiliated with both parties have called for some form of stimulus. In addition to rebates, ideas being batted about range from making the president's tax cuts permanent to giving businesses greater tax breaks to boosting government spending in ways that create jobs or provide more money for the unemployed.
The White House hasn't committed to proposing a package, although President Bush has said numerous times he's considering a broad range of options.
One Congressional source told CNNMoney.com that both Senate and House Democrats are working together on a proposal. House Speaker Nancy Pelosi confirmed in a statement on Tuesday that the Democrats' plan "will assist hard-hit families by promoting consumer confidence, economic growth, and job creation."
Some Washington observers are saying only the Federal Reserve has any real chance of steering the economy away from recession and that any moves from lawmakers would be only for the sake of politics in an election year.
What skeptics on both sides of the aisle express concern about is how quickly the measures chosen will take effect and how temporary they will be in nature.
"We're suspicious of stimulus packages because a lot of the time by the time Congress acts it's too late to have an effect on a recession," said Josh Gordon, senior policy analyst at the Concord Coalition, a bipartisan deficit watchdog group.
What's more, Gordon said, once lawmakers put a temporary tax cut in place there's a lot of political pressure to leave it there or risk being accused of raising taxes. The Concord Coalition doesn't have a problem with a temporary increase in the deficit due to efforts to combat recession, he explained. But too often, he added, "all stimulus options do is blow a hole through the deficit."
Jason Furman, a senior fellow in economic studies at the Brookings Institution who worked in the Clinton Administration, agrees stimulus must be temporary in nature. He thinks three forms of stimulus could help give the economy the kick it needs, and he says they're among the ideas the Democrats are considering:
A one-time tax rebate: Economists disagree about the effectiveness of rebates. "Estimates of how much consumers spend in response to various stimuli are treacherous," former Federal Reserve Governor Lyle Gramley wrote in an e-mail to CNNMoney.com.
He noted, for instance, that estimates by highly reputable economists trying to gauge the effect on spending of consumers who cash out home equity or take out home equity loans range wildly - from 0 to 60 cents on the dollar.
But Furman points to a study published last year that found in 2001, when households received rebates between $300 and $600, consumers spent two-thirds of those rebates within six months of receiving them.
The study estimates the rebates gave a healthy boost to consumer spending at the time.
Reports have indicated that politicians could be considering rebates as high as $500 per individual or $1,000 per couple. It's not clear, however, whether rebates would be given to everyone or limited in some way - such as giving them only to households below a certain income threshold.
A temporary extension of the time to collect unemployment benefits: This was another measure taken in 2001, and now Furman says the number of long-term unemployed is twice as high now as it was then.
A temporary increase in food stamp payments: The advantage of doing this rests on the assumption that families eligible for food stamps already spend some of their own money for food, Furman said.
A temporary increase in food stamps could mean they spend less of their own money on groceries and can redirect their spending to other things or to afford rising heating and gas prices.
President Bush has indicated that if he proposes a stimulus plan, it would rely most heavily on tax cuts rather than new government spending. And he's used discussion of stimulus to reiterate his stated goal of making all of his tax cuts permanent, rather than allowing them to expire by 2011.
"In times of uncertainty, it seems like Congress ought to be sending a message that we're not going to raise your taxes in the next three years by making the tax cuts permanent. Beyond that we'll look at all different options," the president said in a press conference on Tuesday.
There are those who are calling for other temporary tax cuts, such as reinstating what's called "bonus depreciation" for businesses, allowing them to write off more of their investments sooner rather than later. And others are calling for a permanent lowering of corporate tax rates to make U.S. businesses more competitive internationally.
Critics of increasing business tax breaks as a form of short-term stimulus, however, say they don't create as much in new investments as they do reward investments that businesses would have made anyway.