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Deal on stimulus reached

House and the Bush administration agree on a plan including tax rebates and higher limits on home loans.

January 25, 2008|Maura Reynolds, Kathy M. Kristof and Nicole Gaouette | Times Staff Writers

WASHINGTON — Hoping to jolt the ailing economy -- and counter criticism that Washington is too divided to come to Americans' aid -- House leaders and the Bush administration reached a deal Thursday on a package of tax breaks and mortgage rules designed to put more money in consumers' hands and stimulate business investment.

The centerpiece of the plan is a rebate of as much as $1,200 per household -- even more for families with children -- that could be mailed to most taxpayers as soon as late spring. The package also includes temporary tax breaks to encourage businesses to expand and create more jobs this year.

And in a provision crucial to high-housing-cost states such as California, there would be a significant one-year increase in the size of mortgages that could be backed by the government. That would make it far easier for homeowners to refinance into more affordable mortgages.

Economists said the package, meant to forestall or soften a feared economic recession, should provide a significant psychological boost to the economy. But it still might not be enough to prevent a slowdown.

"It is a nice shot in the arm," said Peter Morici, a professor at the University of Maryland. "It reduces the likelihood of a recession, but doesn't eliminate it. Overall, the slowdown will be less severe, but that doesn't mean that the economy won't still slow down."

The move comes at a time when Americans are growing increasingly worried about the economic outlook. A Los Angeles Times/Bloomberg poll released today shows that 79% of respondents are convinced there will be a recession this year.

The cost of the economic stimulus package, some details of which remain murky, would be roughly $140 billion -- $100 billion for the rebates and $40 billion for the business tax incentives. Leaders have set a deadline of Feb. 15 for passing the legislation, although it remained to be seen whether the Senate would leave the deal intact.

Still, all sides hailed Thursday's action as a stunning compromise between parties and branches of government that have been rendered largely dysfunctional by partisan differences.

"I can't say that I'm totally pleased with the package, but I do know that it will help stimulate the economy," House Speaker Nancy Pelosi (D-San Francisco) said. "And if it does not, then there will be more to come."

At the White House, President Bush called the agreement "an effective, robust and temporary set of incentives."

The stock market rose on the news, with the Dow Jones industrial average climbing 108.44 points, or nearly 1%. It was the second day of solid gains spurred by rising optimism about the effect that the stimulus plan and lower interest rates would have on the economy.

The deal was the second major initiative by the federal government this week to forestall a major downturn in the stock market and in the economy as a whole. On Tuesday, the Federal Reserve, which controls the government's monetary policy, cut a key lending rate by three-quarters of a point in a surprise move designed to bolster the economy.

Congress and the administration control the other main lever of economic policy -- government spending and taxes.

The government's plan fell into place after Pelosi decided to give up Democratic demands that the package include expanded spending on unemployment benefits and food stamps, which Republicans opposed. In turn, House Republican Leader John A. Boehner of Ohio agreed that even workers who earned too little to pay taxes would receive a check, a key Democratic demand.

"Democrats gave something, Republicans gave something," Boehner said. "The beauty of this package is that it is simple, it is clean and it is neat."

Key Senate leaders, while giving general approval to the deal, also signaled that they intended to reintroduce at least some unemployment and food stamp benefits and were weighing proposals to spend at least some stimulus funds on infrastructure investment.

"Working families should be assured that this agreement is not the final word," said Sen. Edward M. Kennedy (D-Mass.), chairman of the labor committee. "Families are in crisis, and it's not enough just to help with their taxes. I intend to offer amendments in the Senate to strengthen this package -- to provide unemployment insurance to workers looking for jobs and to help families coping with high heating costs and skyrocketing food prices."

At a news conference Thursday, flanked by Boehner and Treasury Secretary Henry M. Paulson Jr., Pelosi said: "This is the beginning of the legislative process. I think the strength of our bipartisanship in this announcement today will mean a lot to [the Senate]. But far be it from me to ever predict what the Senate may produce."

"There's more to do," Paulson said. "I'm looking forward to working with the Senate."

At the heart of the plan are tax-rebate checks that will go out to about 117 million middle- and lower-income households.

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