President Bush’s Plan for Economic Stimulus

January 18, 2008

Both the White House and Capitol Hill are laying out strategies to stimulate the nation’s economy. Hamilton Project Director Jason Furman assesses President Bush’s proposal for tax rebates and business tax cuts.


“The president now agrees that any fiscal stimulus should be timely, temporary and targeted. The problem is that the devil is in the details and to get that targeting right, you need to get checks out to everyone, especially the people most likely to spend it and the president’s plan leaves out 50 million tax-filing households.

“The president gives a tax rebate to families that pay income taxes. The amount of your rebate is limited to the amount of your income taxes. The problem is that the majority of families in America today, pay more in payroll taxes than they pay in income taxes. So you could be a tax-paying, hardworking, middle class, moderate income family but not actually have enough income tax liability to benefit from the President’s plan.

“The important thing is that the president’s plan is all temporary. The rebates are a very good idea for families. It’s important though that they also go to low and moderate income families and he leaves them out. His plan has only one other part and that’s temporary tax breaks to encourage business to invest. It’s an idea that I used to like, many years ago. We tried it in 2002 and 2003. I was disappointed that it didn’t work as well as I was hoping—a number of academic studies have also found that it didn’t work that well. So, I don’t think business tax breaks are a great way to get the economy going, but it’s a compromise for a final package and a reasonable thing to include.

“A month ago, you had the White House talking about how great the economy was despite all the signs of weakening. A week ago, you had the White House talking about the best way to help the economy was to make the tax cuts permanent even though that wouldn’t deliver a tax cut until the year  2011—three years after our economic problems. Now, the White House admits that there are economic problems, it admits that we need to do something in 2008—not making the tax cuts permanent, not some permanent fiscal change. So, I think its great how quickly they’ve moved towards the Democrats and towards what is now with Ben Bernanke and others an emerging consensus about how to deal with our economic problems.

“The really good news is that everyone is talking to each other. The president is going to have a meeting with the congressional leadership on Tuesday. They have an awful lot in common in terms of their ideas and what needs to be done about the economy. There are some really important details and, again, 50-million families being left out is something that I described as even more than a detail—that would need to be worked out. But, they really are talking to each other. And right now, I’ve talked to people from the administration, from both parties in Congress they all really want to get something done. No one wants to play politics with this, no one wants it to fail, it’s something they want to see passed and passed quickly.”