The last major obstacles to another government stimulus package began crumbling Monday, shifting the debate from whether the fading economy needs a jolt to the best way to provide it.
Federal Reserve Chairman Ben Bernanke endorsed the idea of more incentives for the first time in congressional testimony Monday. Soon after that, the White House said President Bush was “open to ideas” as long as they were “targeted, temporary and timely.”
The new signs of support cheered Democrats, who for weeks have been advocating a stimulus package of about $150 billion. Their plan would include extending unemployment benefits to several million jobless workers – a proposal that appears to have considerable bipartisan support.
Other elements being considered by Democrats include increasing food-stamp benefits and sending extra money to state governments to offset spending cuts that would lead to layoffs of public workers. In addition, Democrats said many planned infrastructure projects could be started in 30 to 90 days, providing jobs for laid-off workers.
Republicans also want to focus on creating jobs but favor stimulating them largely through business and consumer tax breaks. House Minority Leader John Boehner, R-Ohio, has suggested temporarily lowering the corporate tax rate for companies that agree to buy distressed financial assets. He also wants to encourage investment by lowering the capital gains rate for investments in stocks and equities.
In addition, Republicans have proposed making it easier for companies to start offshore oil drilling to create jobs.
The GOP strongly opposes increasing infrastructure spending, setting up another philosophical showdown over the role of government in aiding the economy. Whereas Democrats see infrastructure improvements as an investment in the country's long-term strength, Republicans contend that the money would do the economy more good in the form of tax cuts that let the private sector make spending decisions.
Those arguments will play out in coming weeks and months, but for the present, Bernanke's support for more government stimulus provided a jolt to the stock market. The Dow Jones industrial average closed up about 413 points, or 4.67 percent, on hopes of more government action and signs that credit markets were improving.
Bush, participating in a meeting on the economy with the Central Louisiana Chamber of Commerce, sounded an optimistic note: “I have heard that people's attitudes are beginning to change, from a period of intense concerns – and I would call it near-panic – to being more relaxed and beginning to see the effects of changes and the liquidity that is being pumped in the system.”
Fed chief a key voice
Bernanke did not endorse any specific ideas and refused to offer a financial estimate for a stimulus package. But his support for stimulus earlier this year helped pave the way for a $168-billion package that included tax rebate checks for millions of Americans. That money helped temporarily boost consumer spending through the spring.
“With the economy likely to be weak for several quarters, and with some risk of a protracted slowdown, consideration of a fiscal package by Congress at this juncture seems appropriate,” Bernanke told the House Budget Committee.
House Speaker Nancy Pelosi, D-Calif., urged Bush and congressional Republicans “to once again heed Chairman Bernanke's advice” and work with Democrats “to enact a targeted, timely and fiscally responsible economic recovery and job creation package.”
Adding a jobs component is crucial given the rising unemployment rate, said Rep. George Miller, D-Calif., chairman of the House Education and Labor Committee and a Pelosi ally.
Republicans also seized on Bernanke's comments, pointing up his recommendation that a stimulus package should be designed so that its “peak effects” would hit when the economy is weak while trying to limit long-term effects on the ballooning federal budget deficit.
Where the GOP stands
“House Republicans agree with Chairman Bernanke that action to strengthen our economy is needed, and it should come in the form of pro-growth policies that create new jobs, lower energy costs and protect taxpayers – not hundreds of billions in new government spending masquerading as ‘economic stimulus,'” Boehner said.
White House spokeswoman Dana Perino told reporters that the president was “open to ideas … that would stimulate the economy and help us pull out of this downturn faster.” As recently as last week, however, the White House expressed opposition to infrastructure spending, saying it would not boost the economy quickly.