Fear of Recession Ignites Discussion of More Tax Cuts

ASHINGTON, Sept. 9 — As the economy takes on a recessionary tone and the political stakes rise, the two parties are scrambling to come up with proposals to rekindle prosperity, with Democrats and Republicans alike saying today that further tax cuts are possible if the deterioration continues.

Urged on by Republicans in Congress who are nervous that an extended downturn could harm their election prospects in 2002, President Bush is considering such responses as cutting spending to keep the budget balanced or cutting capital gains taxes to give Wall Street a lift.

Administration officials said the president had not decided to back any particular proposal. They said he believed that previous steps, including the tax cut he signed in June, should spark a recovery before long. If it does not, they said, he might eventually seek further actions.

"We need to let the president's tax cut, as well as the Federal Reserve's interest rate cuts, take full effect," said Jennifer Millerwise, a White House spokeswoman. "But the president also hasn't closed the door on any further tax cuts."

The politics of handling the economy have shifted rapidly just since Friday, when the government reported that unemployment last month surged to 4.9 percent from 4.5 percent in July.

Democrats are seeking to pin the blame for the economy on Mr. Bush. They are linking the slowdown in growth and the rise in unemployment to their argument that Mr. Bush squandered the federal budget surplus by pushing through an irresponsible tax cut.

"It's his budget, it's his economy, it's his tax cut, it's his solution," Senator Tom Daschle of South Dakota, the Democratic leader, said today on ABC's "This Week."

But a number of Democrats said today that they, too, might support further economic stimulus, especially as part of a deal to scale back the longer-term components of Mr. Bush's tax cut. One idea mentioned by several Democrats was an immediate tax cut that would extend even to people who do not make enough money to pay federal income taxes.

One such measure would be to temporarily reduce the payroll tax that finances Social Security. This would reduce the current surplus in the retirement trust fund, but would not divert the trust fund into government spending, or concentrate another round of tax cuts on the wealthy.

"We'd want to do something to put money in people's pockets quickly," Senator Kent Conrad, the North Dakota Democrat who is chairman of the Senate Budget Committee, said on "Fox News Sunday."

Any agreement could be hampered by the intense partisanship that has surrounded the budget, and particularly by the pledges of both parties to avoid spending any portion of the budget surplus generated by Social Security.

To a large degree, the political decisions in the coming weeks and months will be driven by how the economy fares. Economists have never been very successful at predicting downturns or calling the moment at which a weakened economy starts to recover, and there is considerable debate right now about just where in the cycle this economy is.

But economists and other analysts said the nation appeared to have reached something of a turning point, if only psychologically. The risks of protracted economic weakness, they said, are beginning to weigh more heavily on consumers, investors and politicians, all of whom had grown optimistic and perhaps complacent with prosperity.

"I don't know whether we're in a recession or not, but people are looking around and getting scared," said Clyde V. Prestowitz Jr., president of the Economic Strategy Institute, a research group in Washington. "That in itself can be a negative factor."

One result has been to focus new scrutiny on the limited policy choices available. The Federal Reserve has already cut interest rates seven times this year. Although the Fed is likely to continue doing so, the central bank at this point is mostly waiting for past rate cuts to be felt, a process that usually takes six to nine months.

For the administration and Congress, the question is how to reconcile their growing interest in tax cuts or spending increases — the traditional fiscal responses to a flagging economy — with their pledge not to touch the portion of the budget surplus generated by Social Security.

Mr. Bush has said he would put aside his pledge not to dip into Social Security money if the economy went into a recession. But for now the White House and both parties in Congress are assuming that is not an option.

Even though the economy still seems to be moving ahead, it has decelerated so sharply that both businesses and individuals might feel like they have hit a wall, analysts said.

The economy's growth rate has dropped from a robust 5.7 percent during the spring of last year to just two-tenths of one percent in the same period this year, its weakest performance in eight years. Typically, a drop-off of that magnitude would mean a swing from an expanding economy to a shrinking one, the primary attribute of a recession.

Moreover, the indicator that more than any other brings economic difficulty home to people — joblessness — has now shot up by a full percentage point in 10 months, from 3.9 percent last October to 4.9 percent in August.

"It's a very powerful policy and psychological point, because it feels like you've fallen off a cliff," said C. Fred Bergsten, director of the Institute for International Economics, a research group in Washington.

The prevailing view among economists has been that the economy would begin to recover by the end of the year, and there is still considerable evidence to support that outlook.

The tax cut is putting $38 billion worth of rebate checks into the hands of consumers in a 10-week period. The sharp slide in manufacturing seems to be leveling off. New claims for unemployment insurance may have peaked.

But there are considerable risks, including the spread of economic weakness around the world, especially in Japan.

White House officials and Republicans from Capitol Hill who have met together in the last few days said there was broad agreement not to rush into any decisions. Mr. Bush and his team especially counseled patience, participants in the meetings said.

But Republican leaders including Senator Trent Lott of Mississippi, the minority leader, and J. Dennis Hastert of Illinois, the speaker of the House, made clear to Mr. Bush that their colleagues in Congress did not want to have to run next year under the cloud of a recession.

Although Mr. Bush has been noncommittal about cutting the capital gains tax, Republicans said that Mr. Hastert is likely to bring a bill to the floor of the House within the next month or so. Conveniently, such a change might actually raise more money for the government in the first year or two by encouraging investors to sell stocks they might otherwise hold on to. In that way, the tax cut would not force Congress to break its Social Security pledge.

Even as they talk about fiscal stimulus, House Republicans are also pressing for an automatic, across-the-board cut in government spending in the coming fiscal year, which begins Oct. 1. The cuts would be equal to the amount of the Social Security surplus the government is spending this year, allowing Congress to say it has paid back any money taken from Social Security.

The Congressional Budget Office projected last month that the budget would dip into Social Security by $9 billion this year, an estimate the White House no longer disputes.

But neither party in the Senate is enthusiastic about trying to cut spending across the board. In addition to being hard to carry out, cutting spending in the face of a recession might actually slow the economy further.

Well, I think that while both taxes and spending are higher than they should be, cutting taxes should be a lower priority than social spending and education. Not really for a common reason though. please remember this if you intend to reply. I'm not here just to flame people. Pease read this entire post if you intend to comment on it.

I own a small/medium sized buisiness, and while I did get quite a large tax rebate, I know that many of the people who are getting larger tax rebates really are not the people intended to get the biggest breaks. And IMO, those people do not deserve a tax rebate at all. Can anyone guess who I am talking about?

I am talking about the many people who won the lottery, sued a large company, inherited a fortune, or any other wealthy American who, while still paying taxes, provides little for our economy other than what they need to.

One major thing I’d like to point out here is that not all buisiness owners are millionares, and not all millionares own buisinesses. And while this recent tax cut has allowed employers to provide more jobs, and middle/lower class families to spend more money on goods and services, (which in turn causes the money to flow back into buisinesses, and then, back into workers.) a great deal of the money used for the tax cut has gone to people who’s money only comes from winning the lottery or being “wronged” by someone with deep pockets. Also, another thing I’d like to point out is that many luxury goods are imported. So, wealthy Americans who spend most of their money on luxury and none on buisiness are really helping other countries a lot more than our own.

The din of the doomsayers

The sky is falling! The sky is falling!
Everywhere, you can hear the din of the doomsayers -- an oddball bunch who draw from the grimness an obdurate contentment and satiation; like a clump of fortune tellers, with fiery eyes and scowling brows plumbing the depths of their crystal balls, they herald darkness and despair.
"U.S. UNEMPLOYMENT JUMPS", proclaimed CNN, barely containing their glee as Friday's employment report was announced.
"UNEMPLOYMENT RATE JUMPS TO 4.9%", screamed CBSNEWS' MarketWatch website.
To hear the prophets of gloom and doom tell it, America is finished.
An economic curse has descended upon us, say the soothsayers of sorrow with melancholy tongues.
Our cornucopic days of roaring opulance and riches are behind us, forever lost, as misery and indigence awaits us.
In the minds of lefties, images of soup kitchens and unemployment lines stretching as far as the eye could see dance in waves of enchantment, as the rush of adrenalin transports them to Nirvana's very embrace.
Exaggeration and hyperbole, you say?
Some might think so.
But think again.
For, behind the long faces of solemnity with each new jolt in the unemployment rate; the feigned expressions of shock at the almost daily carnage on Wall Street, lies a thinly disguised narcissistic conceit, a ray of comfort, borne of a sense of "vindication", somehow.
Whether the gloomers and doomers admit it or not, their destructive resentment of wealth and achievement -- their implacable envy and pitiless grudge -- drives them to relish the bad news.
Donning their phony "populist" facade, the mission is to spread panic, to whip up hysteria into a lather, in hopes of provoking a mass stampede for the exits.
Their ultimate goal? A glaringly apparent desire to undermine confidence and faith in America itself; to cast a pall on Reagan's 'Shining City on a Hill'.
But here's something for the namby-pambys to chew on: America is coming back.
The notion that the most vibrant economy in the world can not and will not ever recover, that our people are condemned to slouch perennially in abysmal morass is the stuff -- not of realists -- but of cowards and milquetoasts.
American capitalism is irrepressible -- a pulsating force of unbridled dynamism; the focus -- not of evil -- but of boundless envy, the world over.
It survived the Carter administration -- what more need be said?
From the beginning of the year, the sequence of events remarkably parallel the situation Reagan inherited in 1980, differing only in degrees of severity.
Then -- as now -- the incoming GOP president grappled with the mess his predecessor so thoughtfully left behind.
And, then -- as now -- the fiercely disloyal opposition, unrestrained by notions of shame nor decorum -- were on the warpath as ever, attempting to blame the incumbent.
Little did the miscreant fools realize they unwittingly set the stage for Reagan to accrue all the credit when the economy came roaring back.
Fasten your seatbelts: History is about to repeat itself.
My two cents..
"JohnHuang2"

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