what's up

With economists, Wall Street and Americans increasingly leery a recession is on the horizon, DC is racing to put a "stimulus" plan in place to give the economy a little pre-emptive boost.

Not all economists agree
a stimulus package is necessary (or would be effective). For those gung-go on an immediate boost, however, "targetted, timely and temporary" is the going mantra on Capitol Hill - getting cash to consumers and producers as soon as possible and with the biggest bang for the buck. Still, there are different schools of thought on what are the best ways to target energy back into the economy.

Remarkably, House leaders and the president pulled together a compromise stimulus package in late January. What remains to be seen is how much the Senate will tinker with that compromise; a little tweaking could keep the deal enough in tact to assure passage, while too much could derail the process.

the debate

Most of the disagreement over the stimulus plan is where to "target" money, but there is also a chorus of critics who say more should be done to fix the structural problems that got us into this (pre)recession mess.

target: business

Republicans prefer the idea of tax cuts for businesses to boost short term growth. Democrats seem likely to go along with a business boosters, as long as they are directed toward small businesses and/or are tailored to promote investment.

target: consumer

Both parties like the idea of tax cuts - or other forms of cash handouts - to consumers (like you and me), but they don't necessarily share views on how or who to give those cuts to. Some of the options on the table:

• Every tax payer gets a rebate: As in 2002, the government could send tax payers a rebate check to get more spending cash in their pockets.
• Targetted to low and middle class families: Some economists argue that you get the biggest bang for your tax cut buck by focusing on poorer Americans who are more likely to spend any extra cash immediately, rather than put some away for retirement. The extra cash could come by dropping the 10% bracket, boosting the earned income tax rebate or as a cut to payroll taxes.
• Other benefits: similar to tax cuts for the under-wealthy, extending or enlarging benefits - for unemployment, "trade adjustment assistance," food stamps, or heating aid - also gets spending money into the hands of people ready to spend it. There's some talk of "wage insurance" programs that would supplement some income for downsized workers that have taken a major paycut.
• Long term cuts: given that the Bush tax cuts of '01 and '02 are set to expire in 2010, the GOP also wanted take this time to keep those cuts in place by voting to extend them past 2010 - but the president has said, for the sake of a quick compromise, we shouldn't be talking long term tax cuts (which wouldn't help the immediate economic situation).

target: the state

A third way to go is to invest a lot of cash into building infrastructure - roads, airports, etc. - which has the double advantage of creating jobs in the short term and investing in future business (which benefits from a strong infrastructure), but economists seem to agree that any "short term" boost would actually take too long to have an impact.

Not as much about adding a boost to the economy - but to forstall another potential drag, some lawmakers are pushing to help out states in tight fiscal times, with either direct state handouts or by increasing Medicaid funding from the feds.

other ideas

Instead of injecting more money into the economy, some are saying we should be fixing the problems that led to a shaky economy in the first place - and to make sure we don't get hit by more tremors down the road. Prime among those problems is the sub-prime mortgage market, which could get worse this year.

how much are we talking here?

Of course, you never know until the law is passed and the checks are drawn, but there's DC is talking about a plan from $100 billion to $150 billion, with economists saying anywhere from $75 - $250 billion is need to jump start the economy.

who's paying?

The president is taking a strong stand that the stimulus package should not be paid for by raising taxes in the future, so that means - if Democrats wanted to stick to their pay-go principles - they'd have to find other spending cuts to offset the expense. Since that's not going to happen, expect the $100 - $145 billion to go on the national debt tab.

the House/White House plan

The agreement House leaders and the president hatched in January would:

• send $103 billion in checks to everyone who earned between $3,000 and $174,000 (for couples). Most would get $600 as a single person or $1,200 as a couple, with $300 extra per child,
• give small businesses immediate tax perks for investing in equipment and give faster tax payoffs for all corporate investment,
• let the Federal Housing Authority insure larger mortgages and help families switch over from defaulting mortgages - as well as let Fannie Mae and Freddie Mac back higher end mortgages.

The key to the compromise was what each side gave up: the president and the Republicans let go of demands make the Bush tax cuts permanent and gave into Democrat's wish to focus rebates on low and middle income Americans; Democrats, in turn, dropped demands to extend unemployment benefits and food stamps.

what the Senate is thinking

Democratic Senators are likely to push for many of the measures their House compadres gave up: extended unemployment benefits, more funding for food stamps, larger earned income tax credits for the working poor, tax incentives for alternative energy, tax breaks on repatriating foreign investments, money for state infrastructure projects, more Medicaid financing, and heating assistance for the poor.

We didn't make all this up: We just stole it from NYT, NYT, WP, WP, WP, NYT, NYT, WP, WP, WP.

Updated 1.26.07.