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President George Bush has backed an emergency fiscal package of tax cuts and spending boosts in the US administration's latest attempt to boost the flagging economy.
Taxes will be cut by as much as US$75 billion (NZ$100 billion) - or 1 per cent of gross domestic product - in the world's biggest economy, the White House said.
The dramatic move underlined the scale of the US' problems, where house prices are in freefall, companies' output is dropping and unemployment has jumped. The move, described by Bush as a "shot in the arm" for the US economy, failed to rouse markets. The Dow Jones was down 70.4 points at 12,088.80, with investors fearing that such drastic action indicated the economy was in a worse state than many suspected.
With the UK facing similar problems to the US after a decade of cheap debt and record consumption, some suspect tax cuts might prove necessary there.
However, Roger Bootle, managing director of Capital Economics, said that British governments historically tended to avoid cutting taxes in times of economic hardship, instead relying on interest rate cuts and less direct means of stimulation. "If things got really bad [tax cuts are] possible. I don't think we're there yet.
"For a start, interest rates are higher here and so have further to fall. More importantly, we will benefit from the stimulus provided by the falling exchange rate more than the US [since a weaker pound makes United Kingdom exports more attractive overseas].
"Moreover, the budget deficit in the US looks a lot less unhealthy than it does here, so they have more scope for fiscal measures than we do."
Two Democrat candidates for this year's presidential election, Hillary Clinton and Barack Obama, have both argued for tax cuts in recent weeks.
