Bush hammers home on economy

Bush implored Congress to move quickly on the economy.

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NEW YORK (CNNMoney.com) -- President Bush, citing concerns about the country's economic future, called Monday for swift passage of a $150 billion program intended to counter slowing growth.

Bush, delivering his seventh and final State of the Union address, did not lay out any new economic proposals but used the occasion to round out his economic agenda for his last year in office.

He listed a number of priorities: making tax cuts permanent, taking steps to ease the housing crisis, cracking down on government spending and supporting efforts to lower the cost of health insurance and medical care.

In the economic headliner of his address, Bush urged Congress to pass what is billed as an economic stimulus plan. The program, which was brokered between House leaders and the administration last week, is now facing resistance in the Senate as lawmakers seek to put their mark on it.

"The temptation will be to load up the bill. That would delay it or derail it, and neither option is acceptable," the president said. "This is a good agreement that will keep our economy growing and our people working."

The proposal calls for one-time tax rebates to low- and middle-income households and temporary tax breaks for businesses. It also contains two measures aimed at helping homeowners get or refinance mortgages.

The White House has said the plan would add 500,000 jobs and put $100 billion in tax rebates into the hands of consumers. It would limit rebates primarily to individuals making less than $75,000 and couples making less than $150,000.

The plan has its critics. "It is ridiculous for the administration to claim that the stimulus package [will] create more than half a million jobs by the end of 2008." said Chris Edwards, director of tax policy studies at the libertarian Cato Institute. "If that was true, why wouldn't the government just mail $100 billion in 'rebates' to Americans every year?"

Top senators are unhappy that their House colleagues gave up on the party's push to extend unemployment benefits. Others also want to make sure senior citizens who live off Social Security get rebates, which they would not under the proposed House plan.

Some want to push for a measure that reduces corporate taxes, while others want to allow more high-income taxpayers to get rebates.

The House's leading tax writer, Charles Rangel, D-N.Y., said Monday he opposed eliminating the income cap and warned it could jeopardize the stimulus package. "We would only further grow the divide between rich and poor that has already grown so much under President Bush's tax policies," he said.

Extending tax cuts. The president also used his State of the Union address to call again on lawmakers to permanently extend the tax cuts he engineered in 2001 and 2003 that will otherwise expire in three years.

The administration had originally wanted to make the tax cuts permanent as part of the stimulus plan, but backed down for fear that such a move would bog down the debate over stimulus.

In addition, some critics questioned how much the tax cuts would stimulate the economy in the short-run. Proponents, however, said investors and businesses would feel more confident making investments today if they knew what their tax bill will be tomorrow.

"Most Americans think their taxes are high enough. With all the other pressures on their finances, American families should not have to worry about the federal government taking a bigger bite out of their paychecks," Bush said Monday night. "And members of Congress should know: If any bill raising taxes reaches my desk, I will veto it."

For the long-term, critics of extending the tax cuts contend they're just too expensive.

"Making the 2001 and 2003 tax cuts and Alternative Minimum Tax Relief permanent would add $4.3 trillion to deficits and debt [service] over just the next 10 years and would substantially worsen the nation's already serious long-term fiscal problems," according to the liberal Center for Budget and Policy Priorities.

Easing the housing crisis. The economic stimulus package proposed by House leaders also includes two housing measures intended to make it easier for consumers to obtain mortgages or refinance expensive subprime loans.

In his State of the Union address, Bush pushed for three other housing measures, noting that "these are difficult times for many American families, and by taking these steps, we can help more of them keep their homes."

First, he reiterated his call to reform Fannie Mae and Freddie Mac, which guarantee the purchase and sale of home mortgages in the secondary market.

Both Fannie and Freddie have been plagued by accounting scandals, and reform would subject them to more stringent regulation. But Democrats and Republicans disagree over just how the oversight rules should be changed and also over the inclusion of unrelated elements in the reform bill.

He also called on Congress to modernize the Federal Housing Administration (FHA). The FHA loan program is intended for home buyers and home owners with weak credit. FHA reform would lower down payment requirements, increase the cap on loans eligible to be FHA-insured and lower origination fees, among other things. The House and Senate each passed versions of FHA reform in 2007.

Lastly, Bush said he would like to allow state housing agencies to issue tax-free municipal bonds to subsidize the cost of mortgage refinancing for subprime borrowers trying to get out of unaffordable loans. The governments use the revenue derived from the sale of the bonds to help subsidize the cost to consumers of certain types of mortgages they get from private lenders.

Under current law, state and local housing agencies are allowed to issue tax-free bonds only to help subsidize the cost of mortgages for first-time home buyers or home buyers purchasing property in distressed areas.

Trimming pet-project spending. The president also warned lawmakers that he will veto any spending bill that doesn't cut earmark spending in half. Earmarks are funds for lawmakers' special projects that may benefit only their constituencies, and they're typically not openly debated before passage.

"The people's trust in their government is undermined by congressional earmarks - special interest projects that are often snuck in at the last minute, without discussion or debate," Bush said.

In an attempt to make congressional spending more transparent, Bush said he will also issue an executive order Tuesday to federal agencies requiring them to ignore earmarks not spelled out in legislation.

Revisiting Social Security and health care. In past State of the Union addresses, Bush offered broad economic proposals such as reforming Social Security and changing how the government taxes money used to buy health insurance.

He revisited both those issues Monday evening, calling on lawmakers to reform spending on both Social Security and Medicare, both of which face rising costs that will exceed their funding and could pose a heavy burden on the future workforce, whose taxes support the programs.

"We all know the painful choices ahead if America stays on this path: massive tax increases, sudden and drastic cuts in benefits, or crippling deficits," the president said. "I have laid out proposals to reform these programs. Now I ask Members of Congress to offer your proposals and come up with a bipartisan solution to save these vital programs for our children and grandchildren."

He also called on Congress to make health care more affordable and accessible by leveling the playing field between those who buy insurance through their employer and those who buy it on their own. Currently, those who buy it on their own receive no tax break for doing so.

What he didn't say. Bush omitted from his address one staple of the business lobby: reforming the corporate tax code.

Scott Hodge, president of the Tax Foundation, a Washington, D.C., group that advocates for low taxes, said Bush "missed a golden opportunity" to push for lower business taxes. "With the second highest corporate tax rate among developed countries, the U.S. business tax system continues to fall behind as Washington stands still."