Politics, Not Economics, Demands Stimulus

Politicians say tax rebates will come, but some economists wonder why.

ByABC News
January 20, 2008, 6:28 PM

WASHINGTON, Jan. 20, 2008— -- To hear most of the politicians in Washington talk about it, an economic stimulus package is almost a done deal.

"We're going to work this out," Rep. Charles Rangel, D-N.Y., said today on ABC's "This Week."

But presidential hopeful Rudy Giuliani sounded a more cautious note.

"The devil here is in the details," Giuliani told George Stephanopoulos.

Those devilish details will mean a fight over who gets money from the government. Under the initial White House plan, tax rebates would only go to workers who pay income taxes.

Democrats in Congress and on the presidential campaign trail say that would mean as many as 65 million people would get only partial rebates or no rebates at all. They argue that the people who would be shut out by President Bush's proposal are the very people who would boost the economy by spending their rebates instead of saving socking them away in their savings.

Robert Greenstein of the Center on Budget and Policy Priorities said that if the goal of the tax rebate plan is to stimulate the economy by getting people to spend more money, then the rebates ought to go to people who make less money.

"Low and moderate income people are those who come closest to spending the full dollar of every dollar in tax rebate that you give them," He said. "Because they are so squeezed, they're living from paycheck to paycheck."

An eventual compromise could limit the number of people who get rebates but include more benefits to the poor, such as extending unemployment insurance.

Another big question is whether rebates will really stimulate the economy. In 2001, Bush went for a quick fix with tax rebates that were popular at the time, but some recent research casts doubt on whether temporary fixes actually work.

"In 2001, tax rebates had virtually no effect on economic growth," said Brian Riedl of the Heritage Foundation.

One president who did not go for a quick fix was Bush's father. In 1992, with George H.W. Bush fighting for re-election, the country was in a recession. And while his Democratic challenger Bill Clinton talked of bold action, then-President Bush warned that government intervention could harm the economy.