Congressional Budget Office Supports Dem Economic Stimulus Ideas

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WASHINGTON (AP) -- Economic stimulus proposals favored by Democrats, including tax rebates, extended unemployment benefits and a temporary increase in food stamps, are cost-effective ways for Congress to try to boost the economy, the Congressional Budget Office said Tuesday.

At the same time, CBO said, some options floated by Republicans such as extending President Bush's tax cuts, cutting corporate tax rates and giving businesses new incentives to invest may be less cost-effective in the short term.

The nonpartisan CBO echoed the views of many economists who say the most effective way to stimulate the economy is to provide money -- either through tax cuts or direct payments such as food stamps -- to people most likely to spend it quickly.

CBO provides economic and budgetary analysis to Congress. Tuesday's study was requested by Senate Budget Committee Chairman Kent Conrad, D-N.D., and House Budget Committee Chairman John Spratt, D-S.C.

The study should provide fuel for the stimulus debate already consuming lawmakers.

It said lump-sum tax rebates like the $300-600 rebates delivered to taxpayers seven years ago are among the more cost-effective ways for Congress to jump-start the economy, though CBO cautioned that rebates are more effective when given to middle- and lower-income taxpayers more likely to spend it.

CBO also gave high marks to cash payments to the poor and the unemployed as cost-effective ways to stimulate the economy. During recessions, Congress regularly extends unemployment benefits beyond the 26-week limit. Democrats are eyeing a temporary boost in food stamp benefits.

"When the economy is weak, the key impediment to economic growth is how much demand there is," CBO Director Peter Orszag said in an interview. "And from that perspective what you want to do is get money to people who are going to spend it really fast."

Rep. Roy Blunt of Missouri, the No. 2 Republican in the House, said Tuesday he supports tax rebates between $250-500 for individuals combined with temporary increases in tax cuts aimed at promoting business investment. Rep. Eric Cantor, R-Va., proposed cutting the tax rate on corporate income from 35 percent to 25 percent.

House Speaker Nancy Pelosi, D-Calif., spoke Tuesday with Treasury Secretary Paulson, who is likely to be the administration's lead player on any stimulus bill. Pelosi said she and Paulson "discussed the parameters of what might be contained in an economic stimulus package," Pelosi said.

Both Democrats and Paulson have said they are looking at measures that can be passed and implemented quickly.

On Tuesday, Pelosi wrote GOP leaders, House Minority Leader John Boehner and Blunt, suggesting a Wednesday meeting to discuss options and the need to move quickly on a stimulus package.

More than a dozen House Democrats met with Pelosi Tuesday afternoon to sort through options for a stimulus package that Ways and Means Committee Chairman Charles Rangel of New York said would likely combine about $100 billion in short-term tax cuts and spending measures.

Democrats won't release specific proposals in advance of meeting with Bush next week, but they are clearly eager to reach a speedy agreement with Bush and Republicans rather than a replay of last year's partisan fights.

"There's a very good chance of a deal," said House Financial Services Committee Chairman Barney Frank, D-Mass. "Nancy clearly wants one."

Frank said both Democrats and Republicans could agree on many elements, such as extending unemployment insurance and issuing tax rebates to people likely to spend them quickly, and then each side might draw up smaller pieces of the measure.

Pelosi signaled Monday that Democrats were likely to back a federal aid measure for ailing state governments. A 2003 stimulus bill passed by a GOP-controlled Congress and signed by Bush provided $20 billion in aid to states, including $10 billion for the Medicaid health care program for the poor and disabled.

CBO said such state aid works best if it prevents states from cutting spending or raising taxes in response to budget shortfalls that often occur during economic down times.

On the other hand, CBO said recent experience was disappointing regarding the stimulative effect of business tax breaks such as "bonus depreciation" for large investments in property and other capital assets.

Republicans took issue with CBO's conclusions.

"Not only has consumer spending pulled back but we've seen a drop off in the major capital expenditures," House GOP Conference Chairman Adam Putnam of Florida told reporters Tuesday. "So whatever we move forward with needs to strike that balance between business and consumer spending."

Republicans and the White House are likely to use the pending debate over a stimulus package to try to extend or make permanent President Bush's 2001 and 2003 tax cuts, which generally expire at the end of 2010.

But CBO said that whatever the long-term impact of extending the 2001 and 2003 tax cuts, any such moves are "unlikely to provide much demand stimulus to the economy in 2008."