Congress’ chief budget scorekeeper said yesterday that the recently approved economic-stimulus plan makes a recession less likely, although many private economists say the country already is in recession.
“The rebate approach looks relatively good,” Peter R. Orszag, director of the Congressional Budget Office, said of the $168 billion plan to send tax-rebate checks for up to $600 to most workers and for up to $1,200 to married couples.
A cash infusion of “roughly this size could reduce the risk of recession from elevated levels to more normal levels,” Mr. Orszag told editors and reporters at The Washington Times. “It’s clear that the risk of recession is elevated.”
Private forecasters put the odds of recession at more than 50 percent, and many say the economy already is in recession.
“Don’t start tossing any confetti just yet,” said Bernard Baumohl, managing director of the Economic Outlook Group, a private forecaster, noting that the tax breaks will come too late to prevent a downturn early this year.
“While the fiscal stimulus package can’t hurt, it will play only a marginal role in reviving economic growth. This economic slump started with the mess in financial services, and it will not end until banks and other lenders” are nursed back to health, he said.
In adhering to its view that the economy will avoid recession, the CBO is in the unusual position of agreeing with the Bush White House, with which it is often at ideological odds. Both the White House and CBO are looked to mostly for their budget forecasts, and it is rare for either the White House or CBO to predict a recession.
President Bush plans to sign the plan into law tomorrow, and the Internal Revenue Service is expected to start mailing the checks by early May.
“I’m so pleased that the Congress and the administration worked closely together to pass a robust pro-growth package to deal with the uncertainty,” Mr. Bush said yesterday. “It means that money will be going directly to America — workers and families and individuals.” And he said the package would provide “incentives for American businesses.”
Despite the promise of the stimulus plan, Mr. Orszag said the “national long-term fiscal picture is dismal” because of runaway entitlement spending. The dim outlook includes a federal deficit poised to hit $500 billion this year, inflated in part by the stimulus plan and spending on the wars in Iraq and Afghanistan.
“That is the kind of number that we haven’t seen in a while,” said Mr. Orszag, a former economic adviser in the Clinton administration.
He said his optimism about the stimulus package is based on the success of Mr. Bush’s 2001 tax-rebate program, which fueled the county’s then-sluggish economy with rebate checks for $300 to $600.
In 2001, the rebate money flowed back into the economy faster than most economists predicted. About a third of the cash was spent within two months and the rest was spent within six months, he said.
“Our best guess is we are expecting something similar to the experience of 2001,” Mr. Orszag said.
He predicted that the package of rebate checks and business tax breaks would increase the country’s $13 trillion gross domestic product (GDP) — the value of all goods and services produced in the United States in a year — by about $150 billion or 1 percent.
Under the stimulus plan that Congress adopted last week, taxpayers would get rebate checks — depending on their income — of up to $600 per person and $1,200 for a married couple. Families with children receive an additional $300 credit per child.
The plan calls for low-income retirees, disabled veterans, veterans’ widows and the working poor, those who earn so little that they don’t pay income taxes, to get checks for up to $300.
The amount of the rebate will decline for taxpayers earning more than $75,000 a year and couples making more than $150,000. Businesses will get tax breaks for investments in plants or equipment, an incentive to retain and create jobs.
Beyond the immediate risk of a recession, Mr. Orszag said the country’s fiscal future is clouded by soaring health-care costs that will inflate Medicaid and Medicare spending even as the programs are swollen by retiring baby boomers.
Congress has not started to grapple with this looming budget crisis, he said, because the debate so far is misdirected at retiring baby boomers.
“It is much more that each Medicaid and Medicare beneficiary will cost much more in the future than today, and the rate at which that cost per beneficiary grows is the single most important factor affecting the nations’ long-term fiscal picture,” Mr. Orszag said.
He said opportunities present themselves for improving efficiency within the medical system once policy-makers tackle the issue.
For example, he said, lawmakers needs to find out why the same treatment cost $50,000 at UCLA Medical Center and $25,000 at the Mayo Clinic.
“We have spent far too little time and energy trying to figure out how the best medical care in the world costs twice as much as the best medical care in the world and why,” Mr. Orszag said. “And getting at the heart of that … is the key to our fiscal future.”
• Jon Ward contributed to this report. Videos by Barbara L. Salisbury.