Recessions Make Strange Bedfellows

Tom Raum
Associated Press Writer

Fear of recession is taking over on Capitol Hill and on the campaign trail, too, setting the stage for rare bipartisan cooperation. In this presidential year, with no incumbent on the ballot, both parties have an interest in warding off a downturn in the months before nationwide elections.

And neither party wants to be seen as foot draggers if the economy worsens.

Both sides gave up something they wanted in order to line up behind a tentative $140 billion stimulus deal that would give most tax filers refunds of $600 to $1,200.

It was announced jointly on Thursday by Republican and Democratic leaders in the House and Treasury Secretary Henry Paulson. President Bush quickly welcomed it as "an effective, robust and temporary set of incentives."

The haste with which major players fell in behind the plan was in sharp contrast to the long and bitter feuding between the parties on nearly all other issues, including the war in Iraq, health care, Social Security overhaul and domestic surveillance. Even on the economy in the longer term, debate is heated in Washington and among presidential candidates about the best way to resolve problems.

"We’re seeing bipartisanship on this because what member of Congress in his or her right mind is going to vote against sending constituents each a $600 check?" said David Wyss, chief economist at Standard and Poor, a major credit-rating agency.

In the past, such plans have often evolved too slowly to do much good. "We don’t know if we’re in a recession or not. That’s one of the problems. By the time you know you’re in a recession, it’s too late," Wyss said.

The move – following a surprise action by the Federal Reserve earlier this week to cut a key short-term rate – showed U.S. policymakers to be gripped by recession fears.

"This is a possible economic meltdown in an election year. They want to show their constituents they did something bold," said Robert Reich, who was labor secretary in the Clinton administration.

A housing crisis, turmoil in financial markets and rising fuel costs have increased chances that the economy will slip into recession, the first since a relatively shallow one in 2001.

These fears are being reflected in the presidential campaigns as well, as the top issue has shifted from national security to the economy.

Each candidate has an individual stimulus plan, with Democrats tending to favor rebates and more help for lower-income Americans and Republicans preferring tax cuts, especially to businesses.

Each of these plans will now be measured against the White House-Congress plan, which contains a mix of tax rebates to individuals and breaks to small businesses, primarily for purchasing new equipment. The plan will also make it easier for better-off home buyers to afford so-called "jumbo loans" on more expensive dwellings.

Democrats had to push aside labor-supported hopes for more generous unemployment insurance and food-stamp benefits in the package, while Republicans backed away from rebates aimed at higher-income people.

"Let us praise it for what it does, not disrespect if for what it does not," said House Speaker Nancy Pelosi, D-Calif. "It is timely, it is targeted and it is temporary. And it was done in record time."

The deal was cut by the administration with the House of Representatives, since that’s where tax bills originate under the Constitution. The Senate Finance Committee plans to take up its own version next week. Senate Majority Leader Harry Reid said he hoped to send a completed package to the White House by Feb. 15, possibly with increased spending.

Chris Edwards, director of tax policy for the libertarian Cato Institute, doubts that such a package will help the economy avoid a recession and says it will only aggravate inflation and increase the federal deficit. He said, it was clearly the result of "political competition. As soon as one party started talking about stimulus, the other party felt competitively like they had to chime in."

Still, the deal was widely seen as an important breakthrough.

"Both ends of Pennsylvania Avenue have a strong incentive to put a package together," said Thomas Mann of the Brookings Institution. "The Democrats, given the public’s sour view of Congress as well as of the president, really feel obliged to pass something, not just to posture. And for his part, President Bush is worried much about his legacy and has every incentive to take out some insurance with a fiscal stimulus package. This is not a case where just playing defense will serve his interests."

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EDITOR’S NOTE – Tom Raum has covered Washington for The Associated Press since 1973, including five presidencies.