Bush calls for tax rebates

Stepping out as the standard-bearer for an economic rescue, President Bush called Friday for about $150 billion in tax rebates and other measures designed to be a “shot in the arm” for the flagging economy.

The president, who was out of the country for much of the last two weeks as bad news on the economy piled up, returned to the policy forefront by calling for an even larger plan than the $100-billion initiative being discussed in Congress.

“This growth package must be big enough to make a difference in an economy as large and dynamic as ours,” the president said at the White House, flanked by his top economic advisors and Vice President Dick Cheney.

Bush provided few details of what he thought the package should contain. Instead, he laid out “principles” that included an emphasis on tax incentives for businesses, which congressional Democrats have already said they would accept, and opposition to tax increases, which Democrats have indicated are off the table.

The centerpiece of the emerging plan appears to be a one-time tax cut -- paid as a cash rebate this year -- of $800 per taxpayer, or $1,600 for a couple filing jointly. Rebates of that size would total about $100 billion. Officials hope they would spur consumer spending and economic growth.

The remaining measures are likely to be a mix of tax incentives designed to encourage business expansion along with cash relief for the unemployed and needy, who would be likely to spend the money immediately, stimulating growth.

Administration and congressional officials said the president’s intent was to establish parameters and not stand in the way of whatever plan emerged from negotiations.

In an interview, Treasury Secretary Henry M. Paulson Jr., who is expected to lead the administration side of the talks with lawmakers, described the president’s position as “constructive ambiguity.”

“Of course, we know what we’d like to see, but we know that other people have other ideas,” Paulson said.

Bush did not put a dollar figure on his proposal, saying only that it should amount to about 1% of the United States’ annual economic output, or gross domestic product. GDP estimates for 2007 range from $14 trillion to $15 trillion, suggesting a package of $140 billion to $150 billion. Paulson referred to Bush’s recommendation as about $150 billion.

Bush expressed support Friday for business incentives as a major element. White House officials said those might take the form of a credit for investing in equipment and research and development.

“To be effective, a growth package must include tax incentives for American businesses, including small businesses, to make major investments in their enterprises this year,” Bush said. “Giving them an incentive to invest now will encourage business owners to expand their operations, create new jobs and inject new energy into our economy.”

Bush pointedly did not mention the kind of spending Democrats prefer -- an extension of unemployment payments and an increase in food-stamp benefits. In support of their position, Democrats cite economic studies concluding that cash infusions to lower- and middle-class Americans have a broader effect on economic growth than business tax incentives.

“It’s clear that President Bush now recognizes the severity of current economic conditions and the need to provide a timely and temporary boost to the economy, but it’s not yet clear that he would agree to targeting a plan toward people most in need,” said Rep. Carolyn B. Maloney (D-N.Y.), vice chairwoman of the Joint Economic Committee.

Tax experts believe that Bush’s plan would emulate his 2001 tax cut, which reduced the lowest tax bracket and resulted in every taxpayer getting advance refund checks from the Internal Revenue Service. If the 10% tax bracket were to be reduced to zero for one year, that would give every taxpayer a refund of roughly $800, or $1,600 for joint filers, said Gerald Prante, senior economist with the Tax Foundation.

However, 42 million households do not pay income tax because they earn so little that deductions and credits eliminate their tax obligation, Prante said. Today, a family of four earning $40,000 owes no income tax. To get money to those people, he said, the government either has to boost the earned income tax credit -- a subsidy for the working poor -- or do it through social programs.

Paulson said it was too soon to determine who would get what. Bush “is focused on broad-based tax relief for those who are paying taxes,” he said, declining to elaborate. “That was the principle he laid out.”

Congressional leaders are unlikely to be comfortable leaving so many voters out of an economic recovery plan in an election year. But even if Democrats succeed in boosting spending on unemployment insurance or food stamps, some Americans -- those whose income is too high to qualify for such programs but too modest for a federal tax obligation -- may get nothing, Prante said.

Lawmakers from both major parties welcomed Bush’s eagerness to work with Congress, but some Democrats, including presidential candidates Sen. Hillary Rodham Clinton and Sen. Barack Obama, said the plan bypassed lower-income Americans.

“After months and months of watching families struggle to get by in this economy, George Bush finally offered a plan that would leave out tens of millions of working Americans and seniors who need help most and are most likely to spend and boost our economy,” Obama, of Illinois, said in a statement issued by his campaign.

In a campaign stop at a small printing business in Las Vegas, Clinton called Bush’s plan inadequate. “I don’t think it does enough,” the senator from New York said. “According to what we’ve been told, it leaves out 50 million working Americans.”

Clinton and Obama cited their own recently announced economic recovery plans. Clinton’s would bar home foreclosures for 90 days and freeze mortgage interest rates.

GOP candidates Mitt Romney and Mike Huckabee, both former governors, praised Bush’s plan and called for making the president’s first-term tax cuts permanent. And Republican lawmakers vowed to hold the line on spending for government programs.

“We need to stimulate the economy, not government programs,” said House Minority Leader John A. Boehner (R-Ohio).

Some Republicans pressed to extend Bush’s tax cuts as part of a stimulus package, although their party leaders said that was not being considered.

“I remain concerned that in the rush to act, an opportunity to put together legislation that will actually grow and stimulate the economy is being missed,” said Rep. Jeb Hensarling (R-Texas), a conservative leader in the House.

Despite their differences, both sides expressed a desire to pass legislation in a matter of weeks and acknowledged that they would have to compromise to do it.

Rep. Xavier Becerra (D-Los Angeles), a member of the House’s tax-writing Ways and Means Committee, said the biggest compromise occurred this week, when Bush set aside his desire to make the tax cuts permanent -- a goal repeatedly thwarted by Democrats.

“That was a big lift,” Becerra said. “I think the next big lift is to make sure none of us goes in with conditions. . . . The operative word here is ‘timely.’ You’ve got to do it quickly. Everyone agrees that if we’re still debating five months from now on what to do, we’ve missed the mark.”

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maura.reynolds@latimes.com

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Times staff writers Richard Simon and Kathy M. Kristof contributed to this report.