Bipartisan worry shapes stimulus plan
Package aims to boost spending by firms, individuals
A deal to jump-start the economy reached by House leaders and President Bush yesterday would give 117 million households tax rebates of up to $1,200 for couples, an unusual bipartisan agreement amid worries about slowing domestic growth.
But don't plan on being able to pump the money back into the economy just yet: Checks won't start going out until May.
Terms of the package, which still requires Senate approval, would also raise the limits on federally backed mortgage programs, a measure that could help shore up sagging real estate markets like Boston, where homes cost more than in most parts of the country. Additionally, the plan aims to encourage business spending by increasing depreciation deductions for companies.
Individuals could receive checks of up to $600, and married couples up to $1,200, according to a White House fact sheet. All would also receive an additional $300 per child. The rebates would be available to anyone with income of less than $75,000 for individuals and $150,000 for married couples.
To make the deal, Democratic House leaders set aside demands for extra food stamps and unemployment benefits while Republicans agreed to extend rebates to those who don't make enough to pay taxes - anyone who earned at least $3,000 last year will receive a check of at least $300.
The plan will cost about $150 billion, in a year when the federal budget deficit is already expected to be $258 billion. It drew some criticism from economists, reflecting uncertainty over how volatile financial markets have touched the core of the national economy.
Although the Federal Reserve made a steep three-quarters of a point interest rate cut on Tuesday, many traditional economic measures remain relatively healthy, including the unemployment rate, at 5 percent, and inflation, at 2.4 percent (excluding energy and food costs).
Since taxpayers won't start getting checks until May, the rebates will be too late to have an impact on the current period of turmoil, said Argus Research economist Richard Yamarone.
"Anytime you wake up and there's a check in your mailbox, that's a good thing," Yamarone said. "But households aren't going to go on a sustained spending spree" because of it, he said.
Geoffrey Somes, senior economist at State Street Corp.'s investment management division in Boston said, on balance, the package should boost growth about half a percentage point for all of 2008, but not until the checks arrive. "The economy basically is on its own for the first half of the year," he said.
Leaders in Washington yesterday cast the deal as a way to coax the nation through an economic slump.
"The incentives in this package will lead to higher consumer spending and increased business investment this year," Bush said at a White House news conference. "Our economy is structurally sound, but it is dealing with short-term disruptions in the housing market and the impact of higher energy prices."
Said House Speaker Nancy Pelosi, "The stimulus package will put money in the hands of hard-working Americans."
US Representative Barney Frank, the Newton Democrat who chairs the House Financial Services Committee, said concerns that the checks would arrive late don't negate the overall benefits of the plan and it was still a relatively fast response to sudden economic doubts.
"Things deteriorated more rapidly than people thought they would," Frank said. The plan will also have a stimulative effect since the lower-income earners now eligible to receive rebates are more likely to spend them than wealthier taxpayers, who might save or invest the funds, he said.
Frank also praised the provision to raise for a year the limits on housing loans that can be purchased by government-backed lenders Fannie Mae and Freddie Mac to as much as $729,750 from the current $417,000.
The limitation has stunted lending in Massachusetts and other states with high home prices. Frank said he hopes to make the change permanent.
Thomson Financial economist Jeoff Hall said the deal rightly tries to boost spending by consumers and by businesses.
"You need a two-pronged approach, because the credit crisis is affecting both tracks of the economy," he said.
But with the lag in the checks' arrival, he said, election-year politics rather than economics were likely the biggest driver of the deal.
Ross Kerber can be reached at kerber@globe.com.
