Stimulus package gets mixed reviews

From The ST. LOUIS POST-DISPATCH, Friday, January 25,2008

Six-hundred dollars. For Sally Pinkel, it'll mean a new garage door opener. For Eula Wiggins, it could help fund a trip to London. For Sue Westbrook, it'll pay off the bills. For JoAnn Gardner, a tax rebate will pay for gas, groceries and her medication. But will it kick-start the economy?

For that is, after all, the point of the stimulus package that congressional leaders and the White House agreed to Thursday. A $150 billion shot in the arm designed to keep the financial ship of state afloat.

The highlight is a $600-per-adult, $300-per-child tax rebate expected to come in June for all but the wealthiest and poorest Americans: a direct infusion of cash that policymakers, frankly, hope you spend, not save. It'll also include $50 billion in business tax breaks and a boost to the size of home loans that can be purchased by Fannie Mae and Freddie Mac, all intended to pump up spending in the short term and keep the economy out of a recession.

It was crafted in a week of intense negotiations by House lawmakers, who sparred over whether the agreement should include boosts to food stamps or unemployment benefits, and whether households that don't earn enough to pay taxes should get rebates. In the end, the food stamp and unemployment hikes were left out, but any worker who earns at least $3,000 will get some benefit.

"This package has the right set of policies and is the right size," said President George W. Bush.

But it's not a done deal yet. The Senate must still sign off on it and some Democrats there are pushing for more unemployment benefits. Majority Leader Harry Reid, D-Nev., said he hopes to finish it by Feb. 15. Rebate checks wouldn't be cut until summer.

The business tax credit - which would let companies deduct half the cost of any new plants or equipment from their taxes - would take effect immediately once the bill is signed. Local economic development experts said that kind of boost would be quite welcome - at least for some companies.

It's hard to generalize, said Mike Jones, senior policy adviser to the St. Louis County executive, because some industries like plant sciences and high-end manufacturing are still running strong here. But others could use the help to expand and hire more people.

"It'll probably do more good than harm," Jones said. "But I wouldn't consider it a revolutionary step."

A bigger splash, economists say, will come from the tax rebate, though even that may wind up being more mental than anything.

"The fact that the federal government is doing something, between this and (Tuesday's) 0.75 point interest rate cut, it gives a psychological boost to the economy," said Roberton Williams, a principal research associate with the Tax Policy Center in Washington. But, Williams noted, $150 billion in a $13 trillion economy "is not a big chunk of change."

A lot may depend on how people use their $600.

The last time Washington issued rebate checks en masse, in the summer of 2001, only 22 percent of recipients spent most of it on new purchases, according to one study. More people used it to pay down debt.

"Given the prospect that the looming recession may be a serious one, I think something like this is a good idea," said Joel Slemrod, a University of Michigan economics professor who co-authored the report. "But one shouldn't be overly optimistic about how much stimulus would be provided."

But this package is smart, says Gus Faucher, director of macroeconomics at Moody's Economy.com, because it's focused at low and middle-income earners and it tops out at households earning $174,000.

"These are people who are pretty budget-constrained, so when they get these checks they're going to go out and spend it pretty quickly," Faucher said. "That is going to benefit the economy."

Pinkel, a receptionist at a St. Louis marketing agency, said the check that would come for her and her two daughters would fix her broken garage door opener, and maybe the siding on her house that's been chewed up by her 1-year-old chocolate lab.

Wiggins, waiting in line at the downtown post office, said she'd spend some and save some. She's been saving up to go to London, and this would help.

"But you have to keep in mind that the government doesn't give out money too easily," she said. "You might want to hang on to it."

Working the counter, Sue Westbrook had to think about what she'd do with her check, but she usually pays off the bills when her tax refund comes in, and that's probably what she'd do this time around.

There are economists who say the government shouldn't be giving out money to pump up the economy, like Glenn MacDonald, a professor of economics at Washington University.

He argued that lawmakers should let the markets run their course, rather than try to manipulate business cycles and shift market conditions on the fly. And he wasn't too impressed with what they'd come up with.

"Six hundred?" he said. "It's 10 bucks a week. It doesn't even cover the increase in gas prices."