Politics of Economic Stimulus

Normally, getting both sides of Congress to agree on anything is a tough challenge. Why then is there suddenly so much bipartisan support for the economic stimulus plan called for Friday by President Bush? In an election year, even a $140 billion to $150 billion plan—equal to 1 percent of the nation's nearly $14 trillion gross domestic product--can appeal to both Republicans and Democrats.

For the moment, no one wants to be seen obstructing a "stimulus plan," and so the president and Democratic congressional leaders stressed that politics should be kept out of something that is clearly political. "[We] can come up with a package that can be approved with bipartisan support," the president said at his press conference. House Speaker Nancy Pelosi later issued a statement saying that "Democrats welcome President Bush's willingness to work together with Congress."

What might a stimulus package include? Economist Nariman Behravesh of the consulting firm Global Insight expects the final plan to have three elements:

· Tax rebates of $1,600 for families and $800 for singles. Presumably, taxpayers would receive checks directly from the government. Depending on exactly who is eligible for the rebates, the cost would vary between $110 billon to $130 billion.
· Investments incentives for business. These would probably be accelerated depreciation allowances permitting faster tax write-offs for new investment. The cost would be about $10 billion.
· More generous unemployment benefits. Payments could be increased, and the length of eligibility could be extended from the usual 26 weeks to 39 weeks. This cost, too, would be about $10 billion.

Without the stimulus, the economy would grow about 1.5 percent in 2008, Behravesh said. With it, growth would be about 2 percent. At a press briefing, Treasury Secretary Henry Paulson said the stimulus could raise employment by 500,000 over what it might otherwise be. Behravesh put the gain at half that size. Consumers, he said, would spend about half their rebates, with the rest being saved or used to pay down debt.

Neither the president nor Paulson, who will lead the administration's negotiations with Congress, spelled out details of a program, saying they didn't want to poison the climate for talks. But differences remain. Unlike the White House, Capitol Hill Democrats have advocated new spending programs; richer jobless benefits might bridge that disagreement. Democrats have also stressed "targeting" tax rebates for the middle class and poor rather than providing them to everyone.

Still, the odds now favor an agreement. If that happens, how will Republicans and Democrats make the economy an issue in 2008? Easy. If the economy avoids a sharp slowdown and recession, Democrats will say they pushed the White House into the stimulus. If the economy gets worse, they'll continue blaming Republicans for the crushing housing collapse. And Republicans? If the economy does OK, they'll take credit for the stimulus package. If it doesn't, they'll attack the Democratic Congress for not making the Bush tax cuts permanent and undermining confidence.

Despite all the nice talk, it's still about who wins in November.