Policymakers Debate Economic Stimulus Plans, Tax Rebates

Policymakers are quick to respond when the economy weakens. Voters often consider the state of their pocketbooks when election time rolls around. So both those in power and those vying for it take economic considerations gravely. Even the Federal Reserve Chairman, Ben Bernanke, whose position isn't up for grabs in any election, has jumped on board.

In comments the House Budget Committee Bernanke yesterday suggested an immediate stimulus package. Economically speaking such a move makes sense. Recessions can be difficult to pull away from. Avoiding one is the easier course. This advice is in line with President Bush's plan to grant tax relief of $800 per taxpayer. Such relief will likely be scaled back to $500 by the time it leaves Congress.

Members of the House Budget committee debated their positions at length with the Fed Chairman yesterday. Rep. Paul Ryan (R) indicated that tax uncertainty has led people to cut back; people need to know how much tax will be required from them in the near future. With the tax cuts of 2002 and 2003 on the chopping block, Americans could indeed face a large increase in their taxes in the near future. The While House plans to separate the current push for immediate relief from its efforts to make its previous tax cuts permanent.

Rep. Tom Allen (D) discussed the greater impact of tax cuts to lower income households. Bernanke indicated that such a plan would center on an assumption about the spending habits of those who live paycheck to paycheck - namely that they can't save a dime. People who live paycheck to paycheck are more likely to spend their rebates immediately, while those who earn larger incomes would more likely sock it away. While the logic is inescapable, those who live paycheck to paycheck may find this dependence on their inability to save somewhat disheartening.