Spectre of recession spurs US bipartisan economic deal
NEWS ANALYSIS
Republican White House and Democrat-led Congress come together on stimulus package to resuscitate ailing economy.
DEMOCRATIC House Speaker Nancy Pelosi spoke about “bipartisanship” 10 times. The combative lawmaker, who has been so critical of the Bush administration’s policies over the past year, took pleasure in announcing a hard-won deal on an economic stimulus package – reached in double quick time between the Republican White House and a Democrat-controlled Congress.
“Let us praise it for what it does, not disrespect it for what it does not,” Ms Pelosi said on Thursday. “It is timely, it is targeted and it is temporary. And it was done in record time.”
President George W. Bush hailed it as the fruit of “patience, determination and good will” in both parties.
It was a rare victory – and reprieve – for both sides, which have spent most of the past year at loggerheads over many issues, including the Iraq War, children’s health-care and immigration.
Mr Bush vetoed seven Bills in the process – and staged only one signing ceremony with Ms Pelosi and Senate Majority Leader Harry Reid.
The US$150 billion (S$214 billion) rescue package might be the second one if the Senate approves it next month.
What has brought them together after a year of bitter feuding?
Both sides were clearly spooked by fears of an economic downturn in the US. It has become increasingly clear that the economy is teetering on the edge of recession, if it has not already crossed that line.
The crisis in the sub-prime adjustable home loans market has hit many lending institutions hard, cramping credit for almost everyone else.
Economic growth has all but disappeared, companies are reporting big losses and Wall Street continues a losing streak despite the emergency move by the Federal Reserve earlier this week to cut interest rates.
The domestic and foreign turmoil that followed has made the economy the No.1 concern for American voters as the presidential campaign heats up. With recession looming – and threatening to gain political mileage – lawmakers jumped eagerly at the chance to mend the ailing economy.
The package passed on Thursday was aimed at spurring consumption, featuring tax rebates of US$600 to US$1,200 for most tax filers within six months. The hope is that they will spend the money quickly and jolt the economy to life.
Businesses would get US$50 billion in incentives to invest in new plants and equipment.
Each side got something out of the deal.
Late in the negotiations that preceded Thursday’s breakthrough, Ms Pelosi agreed not to include two proposals with broad support among congressional Democrats: an extension of unemployment benefits and a temporary increase in food stamps.
In exchange for those concessions, the Bush administration and House Republicans agreed that the stipend of at least US$300 would be paid to all workers who earned at least US$3,000 last year, even those who did not earn enough to pay taxes.
It was unclear, however, how Democrats in the Senate would receive the package without extended unemployment benefits or increased food stamps.
Some, like Massachusetts senator Edward Kennedy and New York senator Charles Schumer, have said that such proposals offered the best prospects for quickly injecting added spending into the economy.
There was some opposition in the House to Ms Pelosi’s compromise.
“I do not understand, and cannot accept, the resistance of President Bush and Republican leaders to including an extension of unemployment benefits for those who are without work through no fault of their own,” House Ways and Means Committee chairman Charles Rangel said.
The main obstacle, however, remains the Senate, which very often wins its battles with the House.
But with the power of the administration behind them, House leaders are optimistic – despite criticism from some – that their proposals would go through without any significant changes.
Mr Reid said he hoped to send a completed package to the White House by Feb 15, possibly with increased spending.
With the United States on the road to recession, politics might have taken a temporary back-seat. But there is no guarantee that swift cooperation between the administration and Congress will prevent a downturn in the world’s biggest economy.
Passing a stimulus package might not be enough for an economy dealing with a huge unknown: the ultimate magnitude of the housing crash and credit crunch. And investors may want to see something more concrete – lower unemployment or higher retail spending.
US Treasury Secretary Henry Paulson, who has led the White House negotiations, made clear the plan would allow the government to mail out tax rebate cheques aimed at stimulating consumer spending within “60 days, more or less” of congressional passage.
Yet some observers have said it may take the government until May or June to get cheques to consumers, making the economic boost somewhat questionable.
There is bipartisanship today. But it might have come too late.
Many economists, instead, portrayed the package as a significant psychological boost for jittery markets around the world.
CAUSE FOR CHEER
“Let us praise it for what it does, not disrespect it for what it does not. It is timely, it is targeted and it is temporary. And it was done in record time.”
HOUSE SPEAKER NANCY PELOSI
