WASHINGTON – In an economic climate that was already short of positive fiscal news before the Sept. 11 attacks, Treasury Secretary Paul O'Neill warned Congress Wednesday that a $60-to-$75 billion stimulus package would the only way to avert a steep recession.
O'Neill told the Senate Finance Committee that negative real growth can be avoided in the fourth quarter if consumer confidence quickly rebounds. He wrote off third-quarter numbers as invariably negative.
"The depth of this contraction, as well as the pace at which the economy returns to a healthy rate of growth, will depend in large part on how fast consumers regain their confidence and on our success in incorporating new protections against terrorist acts without material reductions in productivity," O'Neill said in prepared remarks.
O'Neill's remarks came as President Bush was in New York to speak with business leaders.
"I think there's no question, we all agree, that the events of September 11 shocked our economy just [as] it shocked the conscience of our nation," President Bush said, stating that O'Neill's stimulus package would be added to the $40 billion emergency spending plan and a $15 billion airline aid package already passed by Congress.
"We believe there ought to be more to make sure that the consumer has got money to spend, money to spend in the short term. Secondly, there needs to be business relief as well, to encourage investment," Bush added.
O'Neill offered the committee no specific tax breaks or spending proposals, but said any stimulus plan should restore consumer demand, boost business investment and help those affected by the attacks. He suggested the plan should focus on short-term solutions to avoid future government fiscal problems.
"The president believes, and there seems to be broad bipartisan agreement in Congress, that we should take care not to put upward pressure on long-term interest rates," O'Neill said. "We are confident we can come together to create a fiscally responsible stimulus package that will restore confidence and prosperity in our economy."
At the same time O'Neill met with committee members, Senate Majority Leader Tom Daschle, D-SD, said that he would be more interested in a package of around $50 billion.
"Senate Democrats generally feel that that's an appropriate size for an economic stimulus package. It's in keeping with the admonition of most economists that we ought to be concerned about striking that balance between providing stimulus and not exacerbating long-term interest rates," Daschle said.
Daschle and Bush both acknowledged that the economic stimulus could return the nation to deficit spending since congressional surplus projections for 2002 have fallen to $50 billion.
"It's very disconcerting to many of us, but I don't know that there is an alternative," Daschle said.
What To Do
How to implement the stimulus package would be the next step. Options being discussed include a new round of tax rebates, perhaps timed for the important holiday retail season, as well as a variety of business tax breaks and assistance for the jobless.
"Everybody has a different take on it," said Sen. Jon Kyl, R-Ariz., after a closed-door meeting Tuesday of the Finance Committee.
Several legislators favor another round of tax rebates. Many Democrats have said they wanted to include the roughly 30 million Americans whose tax burden was so low they did not qualify for rebate checks mailed out earlier in the year. They said they are less interested in extending the tax breaks to those who have already received checks.
But there are some who think rebates are the wrong route. Rep. Bill Thomas, chairman of the House Ways and Means Committee, said rebates would not deal with the primary economic problem — lack of business investment and huge inventories.
"Consumers have not been the problem," said Thomas, R-Calif.
Congressional leaders also planned to hear again Wednesday from Federal Reserve Chairman Alan Greenspan, who had previously urged a go-slow approach to assess the impact of last month's terrorist attacks on the already-soft economy.
"It is very important that we listen to Greenspan," said Sen. Charles Grassley, R-Iowa, ranking member on the committee. "It has something to do with encouraging confidence, because the people have confidence in him."
To aid laid-off workers, Bush has signaled he would consider a 13-week extension in unemployment benefits beyond the usual 26 weeks. That money, paid out by the state according to jobless rates, could be padded with additional federal funds.
Officials said earlier in the week the administration was considering expanding an existing Labor Department program to give displaced workers additional relief, including money for health care and possibly job training. That program, known as national emergency grants, is currently funded at $200 million, but could swell to more than $1 billion, according to several officials.
The Associated Press contributed to this report