Statement: President Bush’s Stimulus Plan is a Positive Step in Confronting Crisis

For Immediate Release: January 18, 2008
Contact: Alan Barber, 202-293-5380 (x115)

Washington DC -- President Bush’s decision to call for an immediate stimulus package shows that he recognizes the seriousness of the economic crisis facing the country. Together with Fed Chairman Ben Bernanke’s call for quick action yesterday, it will help to prod Congress to produce a stimulus package now, instead of waiting for further evidence of economic weakness.

It is also encouraging to see that he recognizes that a substantial stimulus will be needed to provide a sufficient boost to the economy. Like the proposal that we put out earlier this week, President Bush also suggested that a stimulus should be approximately equal to 1 percent of GDP or $145 billion. It is quite likely that the tremendous loss of wealth caused by the collapse of the housing bubble will require an even larger boost from the public sector, but a stimulus package equal to 1 percent of GDP is a credible start.

While President Bush did not lay out a specific proposal, some of his guidelines for a designing a stimulus package are not helpful. For example, he indicated that he wanted a stimulus package to focus on tax relief rather than spending, which he claimed would have a limited impact on our economy. This is not true --as a large body of research shows. Spending in some areas, such as unemployment insurance and food stamps, can very quickly impact the economy. Research also shows that tax cuts directed toward wealthy people do not have much impact on the economy in the short-term

President Bush also called for tax cuts to business as part of a stimulus package. Research shows that tax cuts for business will not have much short-term effect on investment, and therefore they will provide little immediate benefit to the economy.

Any stimulus package must be focused first on boosting the economy in the short-term and helping those who are hardest hit by the recession. Our proposal does this by sending a $600 check to everyone who works or pays taxes. Ideally, a stimulus package would also have lasting benefits, such as reducing the country’s greenhouse gas emissions. For these reasons, substantial tax credits for home and business conservation measures, as well as subsidies to allow lower fares for mass transit riders, should be included as part of a stimulus package. These measures, along with other steps to get money into the hands of low and moderate income families, will provide the greatest benefit to the economy.

The Center for Economic and Policy Research is an independent, nonpartisan think tank that promotes democratic debate on the most important economic and social issues affecting people's lives. CEPR's Advisory Board of Economists includes Nobel Laureate economists Robert Solow and Joseph Stiglitz; Richard Freeman, Professor of Economics at Harvard University; and Eileen Appelbaum, Professor and Director of the Center for Women and Work at Rutgers University.