Bush, Congress Agree 'Now Is the Time' for Action to Boost the Economy

WASHINGTON — President Bush and congressional leaders, meeting hours after the Federal Reserve provided an emergency interest rate cut to calm global stock markets, expressed confidence Tuesday that they would be able to quickly craft a package to boost the slowing U.S. economy.

"I believe we can find common ground to get something done that's big enough and effective enough," Bush told reporters before a White House meeting with congressional leaders from both parties. "All of us understand," he said after the meeting, "that now is the time to work together to get a package done."

Senate Majority Leader Harry Reid, D-Nev., said the goal is for Congress to send a bill to Bush for his signature before the lawmakers break for Presidents' Day recess in mid-February.

But after years of partisan warfare, there was skepticism that Democrats and Republicans would be able to quickly settle their disputes over the best way to jump-start anemic job growth and consumer spending.

Bush has proposed a mix of tax cuts and business incentives worth between $140 billion and $150 billion, roughly 1 percent of the nation's annual economic output. Aides suggested Tuesday he would consider an even larger package.

Many Democrats are also pushing for extra spending on food stamps, heating assistance and unemployment benefits, and say any tax rebates must include more than 50 million low-income workers and fixed-income seniors who don't earn enough to pay income taxes.

"They have to get some help," Sen. Hillary Clinton, D-N.Y., said at a Washington news conference.

Bush's meeting with the congressional leaders came hours after the Federal Reserve Board slashed a key interest rate by 0.75 percent, the largest cut in more than 18 years. The unscheduled action left the federal funds rate at 3.5 percent.

On Wall Street, stocks took a breathtaking 465-point plunge in early trading before climbing back to recover much of the loss. The Dow Jones industrial average closed down 128.1 points for the day, a 1 percent loss.

Earlier, Asian markets fell sharply for the second straight day, and European markets opened lower before recovering to end in the black.

The Dow has fallen 15.5 percent since its Oct. 9, 2007 peak of 14,164. Markets worldwide also have taken a beating in recent days, sparking fears that U.S. troubles could trigger a global contagion.

The dramatic reduction makes it cheaper for consumers to borrow money for automobiles, homes and other large purchases, while reducing the cost of loans for businesses.

Bush and congressional leaders have agreed, though, that interest rate cuts alone aren't enough to revive the faltering economy.

High oil prices, a spike in home mortgage foreclosures, rising unemployment and falling consumer spending are among the mounting signs of trouble in the $14 trillion U.S. economy.

"We may not know the exact answers, but we know that everybody's nervous," said Sen. Charles Grassley of Iowa, the ranking Republican on the Senate Finance Committee. "The sooner we do something, the better."

Peter Orszag, director of the Congressional Budget Office, told a Senate committee Tuesday that previous attempts at stimulating the economy show that the single best thing Congress can do is to get money in the hands of low-income workers and the unemployed through direct tax rebates, expanded unemployment benefits and food stamps.

"The key is to get money quickly to people who will spend most of it, if the objective is short-term economic stimulus," Orszag told the Senate Finance Committee. "For any given pot of money, the more you target lower-income and credit-constrained households, the bigger the bang you get for your buck."

Orszag warned against permanent tax cuts and other measures that could widen the federal deficit, saying such measures could do more harm than good.

"The nation faces a severe long-term fiscal gap," said Orszag. "Stimulus that exacerbates that long-term budget imbalance could impose greater economic costs than benefits."

One option under consideration would provide a tax rebate of up to $800 per worker, or $1600 per family, to help get consumers to open their pocketbooks.

Senate Finance Committee Chairman Max Baucus, D-Mont., floated the idea of smaller rebates — $400 per worker or $800 per household — with a bonus rebate of $400 per child.

"You get a significant number of dollars to families who are more likely to spend," said Baucus. And, he said, "it doesn't cost as much" as the larger rebates under discussion.

Rebates, however, are not a panacea, cautioned Orszag.

For one thing, he said, with the Internal Revenue Service tied down with the onset of tax-filing season, rebate checks won't be issued "before May or June, at the very earliest."

That means it would be autumn before the rebates would have much impact on the economy, he explained.

Rebate packages passed by the Republican-led Congress in 2003 applied only to those who paid taxes. And House Republican whip Roy Blunt, R-Mo., served notice that his party would resist what he called "bloated spending masquerading as stimulus."

Before Bush's White House session, Treasury Secretary Henry Paulson met on Capitol Hill with congressional leaders from both parties, and emerged to express his own optimism that agreement might be reached.

"It will be meaningful, it will be temporary, and something that we can get — hopefully can get done quickly," Paulson said.