- The Washington Times - Friday, January 18, 2008

Federal Reserve Chairman Ben S. Bernanke yesterday embraced congressional plans to quickly pass an economic stimulus package of up to $150 billion including middle-class tax rebates, investment tax breaks, and unemployment and food assistance for the poor.

Mr. Bernanke’s largely unqualified support for the plans outlined by Democratic leaders appeared to push President Bush into the camp favoring immediate action, while it put on the defensive Republican leaders like Senate Minority Whip Jon Kyl, who told The Washington Times on Wednesday that he thought stimulus would do the economy more harm than good.

The influential Fed chairman said some stimulus would help to get the economy through what he expects to be a tough year. He said it should be passed quickly, and should not include measures that would help the economy only in the long term, such as infrastructure spending favored by Democrats and extensions of Bush tax cuts advocated by Republicans.

His testimony before the House Budget Committee came as Wall Street markets plunged on further evidence of the deepening economic slump. The Dow Jones Industrial Average dropped nearly 307 points on reports of record losses at Merrill Lynch, a 27-year low in housing construction, a worsening manufacturing recession and financial troubles at credit insurance firms.

“I think a fiscal stimulus package could be helpful in the current circumstances,” Mr. Bernanke said. “It would provide a broader base of support to the economy than just that afforded by monetary policy.”

A moderate-sized program between $100 billion and $150 billion would provide “significant, measurable” impact and “would not be window dressing,” he said, adding that “it needs to be done quickly, to be temporary.”

The stimulus package should be carefully tailored to provide a strong impetus to growth without sacrificing budgetary discipline and exacerbating the deficit in the long term, he said. While it would necessarily increase the deficit in the short term, it could be offset with tax increases or spending cuts later next year when the economy is recovering, he said.

“The design and implementation of the fiscal program are critically important. A fiscal initiative at this juncture could prove quite counterproductive if, for example, it provided economic stimulus at the wrong time or compromised fiscal discipline in the longer term.”

Mr. Bernanke also cautioned against including the top economic priority of Mr. Bush and congressional Republicans — extensions of tax cuts that expire in 2010 — which he termed a “long-term” economic reform.

“Measures that involve putting money in the hands of households and firms that will spend it in the near term will be more effective,” he said, noting that middle- and lower-income consumers are more likely to spend any money they receive than higher-income taxpayers who disproportionately benefit from the Bush cuts.

Shortly after Mr. Bernanke spoke, the White House said it would work with Congress to quickly pass a plan. Mr. Bush held a conference call with House leaders from both parties, and scheduled a speech for today that might outline what he wants to include in the plan. Previously, the White House said only that it was considering presenting a plan in the State of the Union address.

“We do want to try to pass something quickly,” White House deputy press secretary Tony Fratto said yesterday, adding that the administration would oppose including any tax increases to offset the cost of the plan. “The idea is to put money into the economy, not take money out of the economy.”

The Democrats’ top tax writer yesterday also said he would oppose including any immediate offsetting tax increases.

“All I know is that it is inconsistent to try to get money to consumers to have them to spend and talk about raising taxes at the same time,” said Rep. Charles B. Rangel, New York Democrat and chairman of the Ways and Means Committee. “You just can’t do it.”

After the conference call with the president, House Speaker Nancy Pelosi predicted the White House and the Democrat-led Congress would agree on a package in the next few days.

“The acknowledgment by the president today of the immediate need for a stimulus package is significant progress,” the California Democrat said. She later met with House Minority Leader John A. Boehner, Ohio Republican, to discuss the plan. It was the second straight day the two sat down together after rarely meeting last year.

Democrats are proposing a $300 to $600 rebate check for consumers, which is supported by Republicans and is likely to constitute the core of the stimulus plan. They also want to provide expanded unemployment benefits and additional food-stamp assistance for the poor.

Mr. Bernanke endorsed both the rebate and aid to the poor as elements of a “diversified mix” of stimulus measures. He added that business tax cuts favored by Republicans like accelerated depreciation and small-business expensing would stimulate spending on computers, equipment and vehicles and also help create jobs, and thus would be appropriate in the package.

House Democrats and Republicans have different ideas about how best to jump-start the nation’s sluggish economy:

Republican priorities:

•Reducing corporate tax rate

•Extending President Bush’s 2001 and 2003 tax cuts, which expire in 2010

•Increasing incentives for business investment, such as tax deductions for depreciation of business property

Democratic priorities:

•Extending unemployment benefits

•Increasing spending in food stamps

•Tax breaks for small businesses

Proposals backed by both parties:

•A one-time $300 to $600 tax rebate for each U.S. household

•No immediate tax increases

S.A. Miller contributed to this report.

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