RAY SUAREZ: The deal was announced after a week of intense negotiations among the House Democratic and Republican leadership and the White House, represented by Secretary of the Treasury Henry Paulson.
The centerpiece of the $150 billion plan is a tax rebate, which would give more than 100 million Americans money. Individuals making less than $75,000 a year in adjusted gross income and couples making less than $150,000 are eligible. Low-income workers who made at least $3,000 last year, but too little to file income taxes, would also receive $300.
Other provisions include: a business incentive that would allow a 50 percent deduction on the purchase of new equipment; and businesses could write off a larger share of current losses against previous tax years.
Not included in the plan were: an increase in food stamp allocations; and there was no extension of long-term unemployment benefits.
To deal with the housing crisis, the plan also expands the Federal Housing Administration’s ability to insure higher priced mortgages. The speaker of the House, Nancy Pelosi, said she would not hesitate to push further measures if the present bill didn’t prove effective.
REP. NANCY PELOSI (D-CA), Speaker of the House: I can’t say that I’m totally pleased with the package, but I do know that it will help stimulate the economy. And if it does not, then there will be more to come.
RAY SUAREZ: The Republican leader in the House, John Boehner.
REP. JOHN BOEHNER (R-OH), House Minority Leader: The beauty of this package is that it is simple, it is clean, it is neat, and it will get the money back out into the American economy as quickly as possible.
RAY SUAREZ: A short time later at the White House, Secretary Paulson said the rebate checks could start going out as little as 60 days after passage of the bill.
Assessing regional impacts
RAY SUAREZ: How will this proposed stimulus package address the economic concerns around the country? For that, we turn to Michael Goodman, director of economic and public policy research at the University of Massachusetts Donahue Institute; Dawn McLaren, research economist with JP Morgan Chase Economic Outlook Center at Arizona State University; Olugbenga Ajilore teaches economics at the University of Toledo; and Mark Vitner, senior economist for Wachovia Corporation in Charlotte, North Carolina, he joins us tonight from Fort Lauderdale, Florida.
Guests, I'd like to start by getting a quick overview of your impressions of the package and how it's designed.
Let's start with Michael Goodman.
MICHAEL GOODMAN, University of Massachusetts: Well, Ray, I think it's a good start. Certainly, we've been seeing a lot of pressure on households in New England, with rising fuel prices, which really disproportionately affect our region. And certainly, we've been feeling more than our fair share of the housing decline.
So I think putting dollars in the pockets of consumers will really help to offset the double-digit increases we've seen in home heating oil prices, the more and more dollars being spent at the gas pump by our residents and consumers, and I think really start to bring some relief.
In addition, I think it's a significant move, the proposal to raise the conforming loan rates. Here in New England, where our housing prices are relatively high, moving that level up will allow many more of our homeowners who are in the so-called jumbo loan area to refinance and others to buy, which I think will start to relieve some of the significant pressure we've been feeling in the housing market here.
RAY SUAREZ: Dawn McLaren, what do you make of the package's design?
DAWN MCLAREN, Arizona State University: Well, we've had a lot of trouble with our housing market here in Arizona. And unfortunately, I think the amount that people will be getting back is not enough to offset the problems that we've seen in housing prices and the decline in house price over here.
People's equity position has been deteriorated quite a bit over the last number of months, so it still remains a problem for us, not enough to offset it.
RAY SUAREZ: Professor Ajilore?
OLUGBENGA AJILORE, University of Toledo: I have some concerns about it, because I'm not sure if it's really targeted to the right people. And also, in the Midwest, one of the biggest problems we've had is unemployment. And because they've taken the extension of the unemployment benefits off the table, it may not have as much of an impact as the Congress would hope.
RAY SUAREZ: And Mark Vitner?
MARK VITNER, Wachovia Corporation: Well, here in the South, I think that the package will help a little. Raising the limit on conforming mortgages will certainly help in Florida.
And the jumbo market all over the South has been hurt somewhat, because jumbo loans have become much more pricey since the securitization market has dried up.
The rebate checks, they'll help a little, too. In Florida, we have seen a significant negative wealth effect. Consumer spending has actually dropped in Florida over the last year.
And this should help offset some of the sting from fallen home prices. It's not going to offset all of it, but it's not designed to. It's really designed to cushion the blow. And I think it has a good chance of doing that.
RAY SUAREZ: Mark Vitner, what if those checks don't arrive in people's hands for some months to come? The bill first has to get passed; then, the IRS has to finish processing everybody's 2008 tax returns.
MARK VITNER: Yes, I know, the timing of it is a little dicey here. You know, we had a similar experience back in 2001 with the rebate checks, and those were incredibly well-timed. It may have been the best-timed fiscal stimulus in the history of the country.
I don't know that we're going to get so lucky this time. The critical period for the U.S. economy is going to be the next six months. We're looking for very little GDP growth in the first quarter, something like 0.4 percent. And the second quarter is only going to be a little bit better than that.
The second half of the year, we expect the economy to pick up a little bit. We're looking for GDP growth in the 2.5 percent range. We don't see a recession.
But this stimulus package should help ensure that the slowdown in the first half of the year doesn't spill over into the second. I'm not absolutely enthralled with this package. I mean, I would have done something much different than this. But for government work, it's not bad.
Lingering unemployment problems
RAY SUAREZ: Professor Ajilore, you mentioned that the parts of the program that a lot of members of Congress were clamoring for -- that is, an extension of unemployment benefits and some relief in food stamp areas, extending validity qualification for a lot more people -- weren't in there.
Why is that of particular interest in your part of the country, the Great Lakes and the Upper Midwest?
OLUGBENGA AJILORE: Well, as most people know, unemployment in this area has been much higher because of the change in manufacturing and different industries. And also people have had a hard time adjusting to globalization.
And so one of the problems that -- people have been losing their jobs. As you mentioned earlier (inaudible) going to be doing a lot more buyouts. That's going to really particularly hit the Michigan and Ohio areas pretty hard.
And so, because of that, people are going to be on unemployment longer. And because of this recession, if they're able to extend it a little bit, that will help people to kind of get back on their feet, maybe even go back for education or training, so they can get new jobs and better jobs.
RAY SUAREZ: Are the states in your region also hurting financially so that extending unemployment on their own just isn't a possibility?
OLUGBENGA AJILORE: Yes. There's a lot of pressures on the states because of their budgets. And there have been a number of issues with increases in several programs so that it's tough for the states to do this on their own. And it would have been very helpful if they were able to extend unemployment benefits for that.
RAY SUAREZ: Dawn McLaren, you heard earlier when Michael Goodman endorsed the fact that now the big agencies will be able to insure mortgages for a much higher loan amount.
Now, one of the hot spots for foreclosures has been your part of the country. This won't help people who've already lost their houses, of course, but what if you're heading in that direction? Will you be able to refinance where you might not have been able to before?
DAWN MCLAREN: I think that we have too much trouble in that area to be able to refinance, because our house prices went overboard. They went far beyond what their values should have been, in terms of looking at how our income growth has gone in this area. It is quite a bit of a bubble here.
So even if someone is able to refinance, is it a good idea? That's a whole other question.
But it just looks as though this is not going to be enough to stave off what our problems are. We have bright spots in other areas, but not particularly from this package.
Incentivizing business growth
RAY SUAREZ: And, Michael Goodman, what about the business incentives? Will they really change individual business people's economic behavior, their short-term economic behavior?
MICHAEL GOODMAN: Well, the devil is in the details. I think the timing is going to be critical. To the extent that this is debated over a longer period of time, you wouldn't want to be in a situation where businesses are now sitting on the sidelines waiting for the stimulus or tax incentive to be passed and forgoing purchases or investments that they might otherwise make waiting for a tax incentive.
At the same time, though, if it's able to be implemented swiftly and the details make sense -- we've yet to see those -- then I can see how it would benefit many of our leading industries here in Massachusetts who rely in large measure on the business community around the country and the world to purchase our high-technology goods, information technology, software, hardware, telecommunications, et cetera.
And so any time there's a real incentive with some teeth that's going to make it easier for businesses to invest in those products, I think it's going to be ultimately a positive move for Massachusetts.
RAY SUAREZ: Well, Mark Vitner, earlier you spoke about how we're looking at a tough year, in your view, either way. But aren't there a lot of bright spots, well-performing states, strong-performing states in the Southeast, which you cover?
MARK VITNER: Yes, the South, it's a bit of a mixed bag. Florida is clearly struggling. And the state is either in a growth recession or outright recession. We think it's in a growth recession.
But at the other stream, Texas is booming. Texas has added over a million residents in the last two years. Houston has added over 100,000 jobs. Dallas has added close to that. Austin is seeing very rapid job growth.
The Carolinas and Tennessee are also doing incredibly well. In fact, those states are benefiting from some of Florida's troubles. People that have been priced out of Florida are increasingly moving to the Carolinas and Tennessee. And we're also seeing that businesses are migrating to those states because of their lower operating costs.
But it doesn't matter where you go. Even if you go to Texas, they're still feeling the impacts of a slowing economy. Housing in Texas is down 25 percent. It's not down as much as it is down here in Florida, where we're down 80 percent, but it's slowing everywhere.
And so I'm not afraid that the stimulus might -- some people are worried that the stimulus package, if it's too large, might add to inflationary pressures. I don't think it's likely to do that.
Consumer spending is slowing all over the country. And if this stimulus package makes consumer spending a little bit stronger, if it adds a little bit of oomph to consumer spending around the middle of the year, I don't think it's really going to create an inflationary threat.
It's not going to be a game-changer, either. It's not going to end the slowdown by itself. But it could make the difference between this slowdown turning into an outright recession or simply being just a slowdown, a temporary slowdown in economic growth. And so I think it's probably well worth doing.
Concerns over inflation
RAY SUAREZ: Dawn McLaren, what about the West? And what do you make of Mark Vitner's prognosis about the effect of the stimulus? Are there parts of your regional economy that could be helped by what's in this package?
DAWN MCLAREN: Well, I think that there is certainly the problem of inflationary pressure. That's not going to be because of the package. I think we have other things going on, especially in our area, in terms of food and that sort of thing that will end up putting inflationary pressure from other places.
In terms of a bright spot, we have the Grand Canyon out here. And we are benefiting from the weak dollar. So in terms of consumer spending, domestic consumer spending may be down, but we have people who cross the border to shop. And we have people who come from Europe to visit the Grand Canyon.
So we do have that advantage. And in terms of jobs, our leisure and hospitality sector has continued to be strong. And it is our construction sector that is the weak part.
RAY SUAREZ: Have those bright spots been able to counteract the softness in employment in other areas?
DAWN MCLAREN: It has. It has somewhat offset the problems that we've experienced in terms of jobs in the construction sector and related real estate sectors, in terms of financing and that sort of thing.
So our leisure and hospitality has managed to stave off some of that problem. We still end up with, for instance, positive totals, when you average out both the job sectors, rather than seeing jobs failing altogether there.
RAY SUAREZ: Professor Ajilore, looking at the problems in your region of the country, what about the rate cut in concert with the stimulus package? Are there things in there that could help, particularly in the manufacturing sector, which is so important to your region?
OLUGBENGA AJILORE: Well, one problem with the manufacturing sector is because of international competition. And so I think one of the concerns about this economic stimulus program is that it takes away from the fundamental issue of trying to help revitalize certain areas.
And I think the key is looking at, what new industries are available to the areas in the Midwest that would help turn the economy around, instead of trying to rely on manufacturing?
And one good example is actually here in Toledo and Bowling Green, the northwest Ohio area, where we're developing new alternative energy firms specifically looking at solar panels and solar panel creation. If that new industry is able to take off, then it will be able to balance any issues that we have with the manufacturing sector.
And so I think the focus needs to be looking at a bigger picture, instead of looking at the economic stimulus and boosting consumer spending, just to kind of cushion the blow of the recession, but in our area to focus more on, what new industries can we do and can we use to help turn the area around?
RAY SUAREZ: Olugbenga Ajilore, Michael Goodman, Mark Vitner, Dawn McLaren, guests, thank you all.