Washington in bipartisan mood on economy

With stock markets swooning, it was clear on Friday that the bipartisan mood in Washington to produce an effective economic stimulus package for the US economy was bordering on a love-in.

Charles Schumer, a senior Democrat on the senate banking committee, said there was “a real attitude of co-operation between the parties at each end of Pennsylvania Avenue - and I think that’s because people realise the precarious state of our economy”.

The Bush administration was short on specifics, with Treasury secretary Henry Paulson talking of “broad-based tax relief for those who are paying taxes”.

But the fact that there is no detail yet is a sign that the administration appears determined not to impair the chances of crafting a compromise with Congress by going public with specifics.

Barney Frank, chairman of the House financial services committee, said: “We are all on our best behaviour. There is a conscious agreement to work this thing out.”

Analysts said that by agreeing on Mr Paulson’s advice to de-link the idea of a fiscal stimulus from the administration’s long-standing demand that the Bush tax cuts be made permanent, the White House had opened the door to a bipartisan agreement.

Mr Schumer said a “long debate as to whether the president’s tax cuts mainly aimed at the wealthy and that don’t expire until 2010, would spell death for the package” – which he believes could be ready to take effect by March 1.

However the sticking point revolves around the administration’s emphasis on tax relief, set against the Democrats’ demands that any tax rebate be available in full to low income workers who pay little or no income tax - but still make payroll contributions to Social Security and Medicare.

Democrats are sceptical that a mooted $800 individual tax rebate would benefit payroll workers, and would be unlikely to be spent by higher income earners either. “I don’t think Bill Gates is going to spend his $800,” Mr Frank told the Financial Times.

“There is an agreement that you want to get money back to people’s hands, but we have people who aren’t paying income taxes. That is something that will have to be worked out,” he said.

Democrats also want direct measures like an increase in transfer payments to the poor through food stamps and/or unemployment benefits.

Mr Schumer said he was disappointed that President Bush “did not include stimulus spending” as part of his plan.

Yet he added: “I don’t think anyone wants to throw the gauntlet down at the moment but we are going to push for it [stimulus spending].”

Some Republicans in Congress remain skeptical about the case for a stimulus package and would rather stick to pressing the Bush taxes to be made permanent.

Mr Frank said that a Republican desire to include some kind of business tax depreciation measure would not be “a deal breaker” for Democrats. “I don’t think unemployment compensation” - urged by Democrats – “is a deal-breaker for their side either,” he said.

One thing that both sides agree on, however, is speed and simplicity. Mr Paulson said on Friday: “We believe that there's a great benefit to being simple. The Christmas season has come and gone. We're not trying to decorate a Christmas tree here.”

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.