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WASHINGTON - The Bush Administration has proposed up to US$150 billion ($198 billion) in corporate investment incentives and personal tax rebates to counter risks to an economic expansion now in its seventh year.
"Passing a new growth package is our most pressing economic priority," said President George W. Bush after meeting his economic advisers.
Bush separated the plan from his push to make his past tax cuts permanent. That suggests the Administration and lawmakers may be able to reach a deal more quickly, as Democrats warned against including an extension of the tax reductions in any package.
Nariman Behravesh, a chief economist at the research firm Global Insight, said such a plan could help avert or minimise a potential recession.
"It will have an effect on the economy, assuming the impact is in the second or third quarter," Behravesh said. "It could prevent a recession."
Bush said Treasury Secretary Henry Paulson will lead the Administration's efforts at crafting a deal with the Democratic-majority Congress.
While the economic fundamentals are strong, "there is a risk of a downturn", Bush said. The plan must include tax incentives for businesses and "direct and rapid income tax relief for the American people", he said.
Bush said the package should total about 1 per cent of gross domestic product, which was an annualised US$13.97 trillion in the third quarter. Paulson later cited at a press briefing an estimate of US$140-150 billion. A continued decline in the housing market and the rising cost of oil might cause more harm to the economy and jeopardise job creation, Bush said.
But the the announcement failed to lift stocks from of their worst start to a year. The Standard & Poor's 500 Index completed its biggest weekly loss in five years - down 9.8 per cent for 2008.
"The fear is that the plan, and even the Fed [Federal Reserve], may not have enough firepower to turn the path to recession around," said Richard Sparks, senior equities analyst at Schaeffer's Investment Research in Cincinnati.
Paulson, at the later White House briefing, reiterated his belief that the housing market was "the biggest issue we have in our economy" and said the Administration was considering further measures to help struggling homeowners.
"We have been open to any good idea we've heard," he said.
"We're focused on what we think are the right ideas."
The US unemployment rate in December climbed to 5 per cent, the highest in two years, from 4.7 per cent the previous month. Federal Reserve chairman Ben S. Bernanke said that a stimulus plan of up to US$150 billion would be "significant" and not "window dressing".
Bush did not offer specifics on the stimulus plan, saying he wanted to reach an agreement with Congress.
The Administration was considering offering US$800 tax rebates for individuals and US$1600 for households, people familiar with the discussions said.
"My advisers and many outside experts expect that our economy will continue to grow over the coming year, but at a slower rate than we have enjoyed for the past few years," Bush said.
While the Administration had taken steps to help homeowners avert foreclosure and asked Congress to allow the Federal Housing Administration to provide additional relief, more help was needed to bolster the economy, Bush said.
"This growth package must be big enough to make a difference in an economy as large and dynamic as ours, which means it should be about 1 per cent of GDP," Bush said.
The plan must be temporary and shouldn't include any tax increases, Bush said.
"Yesterday I spoke to members of the congressional leadership from both political parties," Bush said. "I was encouraged by those discussions, and I believe there is enough broad consensus that we can come up with a package that can be approved with bipartisan support."
The White House and Congress are trying to hammer out an agreement quickly, with some Democrats saying it could come in 30-45 days.
Democrats in Congress said they were pleased by Bush's remarks.
"I was encouraged" that Bush agreed with members from both sides, said said House Majority Leader Steny Hoyer.
- BLOOMBERG, REUTERS
