The President's Tax Free Economic Stimulus Proposal
Friday, January 18, 2008SUSIE GHARIB: President Bush said today the cure for the slowing U.S. economy is quote, direct and rapid tax relief for American consumers and businesses. But his proposal for a $150 billion fiscal stimulus plan failed to stop the selling on Wall Street. All the major averages ended lower with the S&P 500 posting its biggest weekly loss in five years. We have two reports tonight looking at the outlook for the stock market and the goals of the White House stimulus package. We begin with Stephanie Dhue in Washington.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: The president wants to put money in the hands of consumers and bolster business spending as soon as possible. He says a stimulus plan needs to be broad-based, temporary and not raise taxes.
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: By passing an effective growth package quickly, we can provide a shot in the arm to keep a fundamentally strong economy healthy.
DHUE: The idea is to keep the housing recession and the problems in the credit markets from spilling over more broadly into the economy. In the interest of crafting a bipartisan plan, the president was intentionally short on specifics, but the centerpiece of the $140 to $150 billion plan is expected to be a tax rebate of around $800 per person or $1,600 per couple.
BUSH: Letting Americans keep more of their own money should increase consumer spending and lift our economy at a time when people otherwise might spend less.
DHUE: The president set aside a potential stumbling block for the package, the debate over making his 2001 and 2003 tax cuts permanent. Democrats say they will work with the president, but they would prefer a plan targeted toward lower income Americans. Some Democrats want to increase spending on food stamps and unemployment benefits, but Treasury Secretary Paulson says keep it simple.
HENRY PAULSON, TREASURY SECRETARY: The Christmas season has come and gone. We're not trying to decorate a Christmas tree here. That a huge part of this is going to be speed. It's going to be getting money out quickly and when it will make a difference.
DHUE: The lobbying push for a stimulus plan has already begun. John Castellani, who heads the Business Roundtable, endorses the president's approach and says the stimulus would also encourage businesses to accelerate their investments.
JOHN CASTELLANI, PRESIDENT, BUSINESS ROUNDTABLE: It'll bring them forward and that, in turn, creates jobs for people that make the good that you're buying for your factory or your facility.
DHUE: In the past, fiscal stimulus plans have hit the economy after it has already begun to recover from a downturn, but Comerica Bank economist Dana Johnson says a temporary stimulus shouldn't create inflation.
DANA JOHNSON, CHIEF ECONOMIST, COMERCIA BANK: If the economy turned out to not need it, the Fed could easily start raising its interest rates back up in that happy event.
DHUE: Analysts expect a fiscal stimulus package to get bigger as it makes its way through the Congress -- not because the economy will get worse, but to add political support to tax and spending proposals. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: This is Suzanne Pratt in New York. It seems reasonable that a fiscal stimulus plan from Washington might give the stock market a kick in the pants, but today that was not the case. Investors were unimpressed by the president's offering and, at the same time, shrugged off solid earnings from GE and IBM. Experts say that's because investors continue to fixate on the nation's credit problems, worry about consumer spending and the economy. Even though January has been a brutal month for stocks, long-time market pro Jim Awad does not believe we're entering a bear market.
JAMES AWAD, CHAIRMAN, W.P. STEWART ASSET MANAGEMENT: I wouldn't say the bull market has come to an end. I would say that you've gone into a more sober market where corporate profits, if they grow, are going to grow modestly. That if stock prices go up, they're going to go up modestly. And that the type of stock that goes up will be very different.
PRATT: The stock market is considered a leading indicator on the health of the economy and the recent sell-off seems to suggest the U.S. is headed for recession. Whether it's recession or extremely slow growth, many experts say investors need to recalibrate expectations, particularly with respect to corporate profits. They say forecasts on Wall Street are far too optimistic and that analysts must readjust them downward. JPMorgan's Stu Schweitzer says until that happens, it will be rough going.
STUART SCHWEITZER, GLOBAL MARKETS STRATEGIST, JP MORGAN ASSET MANAGEMENT: It feels to me that trying to buy stocks here is like trying to catch a falling knife and people are going to be very leery of stepping in front of these very, very difficult conditions. But at some point along the way, value is going to prevail.
PRATT: Others say until investors get a better picture on the outlook for the economy, trading will remain choppy.
AWAD: Sometime in the March-April period, we will get clarity on how significant the slowdown is. And by then, we should have worked our way through the final write-offs. And the market should bottom in the first quarter or early in the second quarter of '08.
PRATT: Some experts believe by summer the stock market will take the nation's political environment more seriously. As the presidential election nears, they expect investors will focus on how Wall Street will be affected by Washington in 2009. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
