Bush Outlines Fiscal Stimulus Package

by Mike Godfrey, Tax-News.com, Washington

22 January 2008

US President George W. Bush has confirmed that his administration intends to work with Congress to write a fiscal stimulus package capable of steering the US economy through a widely-predicted downturn. He insisted however, that such a package must be 'broad based' and contain measures aimed at helping businesses as well as individual taxpayers.

Bush outlined his proposals in a White House press conference on Friday after another turbulent week for the US stock markets, prompted by yet more negative economic data. On the day before Bush's announcement, the Dow Jones Index closed down more than 300 points, while over the course of last week, the broader-based S&P 500 index lost almost 5.5% - its worst week for five years.

"After careful consideration, and discussion with members of Congress, I have concluded that additional action is needed to keep our economy growing and creating jobs. Congress and my Administration need to work together to enact an economic growth package as soon as possible," Bush announced.

However, while Bush said that he is prepared to listen to suggestions from both sides of the aisle, he laid down certain principles to guide Congressional deliberations: that the growth package should be large enough to make a difference to the US economy and should equal about 1% of the country's gross domestic product; that the growth package should be built on broad-based tax relief and not 'ineffective' spending projects; that the growth package must be temporary and take effect right away; and that the growth package should not include any tax increases.

Hitherto, most of the proposed solutions to avert an economic crisis, mainly from Democrats, have focused on providing quick payments to individual taxpayers, particularly low income groups, in the form of rebates, to get the country spending again. But Bush was insistent that a growth package should also include tax relief for businesses.

"This growth package should bolster both business investment and consumer spending, which are critical to economic growth. And this would require two key provisions: To be effective, a growth package must include tax incentives for American businesses, including small businesses, to make major investments in their enterprises this year. Giving them an incentive to invest now will encourage business owners to expand their operations, create new jobs, and inject new energy into our economy in the process," Bush stated.

Nevertheless, the President did express support for some form of "direct and rapid income tax relief for the American people", although he remained non-specific.

"Americans could use this money as they see fit - to help meet their monthly bills, cover higher costs at the gas pump, or pay for other basic necessities. Letting Americans keep more of their own money should increase consumer spending, and lift our economy at a time when people otherwise might spend less," he observed.

Bush also took another opportunity to highlight the looming expiry of existing tax cuts, some of which are due to lapse at the end of 2010, and yet again urged a reluctant Congress to make these tax cuts permanent.

"Unless Congress acts, the marriage penalty will make a comeback, the child tax credit will be cut in half, the death tax will come back to life, and tax rates will go up on regular income, capital gains, and dividends. This tax increase would put jobs and economic growth at risk. So it is critical that Congress make this tax relief permanent," he argued.

Responding to Bush's announcement, Senator Max Baucus, who chairs the tax-writing Senate Finance Committee, stated that he would be prepared to work with the President to get fiscal stimulus legislation passed "in the coming days", but also expressed support for additional measures that would go beyond tax cuts, to get the economy moving.

"I’m inclined to agree that tax relief, particularly rebates, would be the best foundation for a stimulus package," acknowledged Baucus. However, he added that: "I think Congress can build beyond tax relief to further address the needs of Americans bearing the brunt of slow job growth and the housing crisis."

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