Senate backs economic stimulus plan

Senate backs economic stimulus plan

By James Politi in Washington

Published: February 8 2008 02:09 | Last updated: February 8 2008 02:09

The US Senate overcame its divisions on Thursday and voted to approve a $170bn (€117bn, £87bn) economic stimulus plan that lies at the heart of the Bush administration’s efforts to avert a recession.

A compromise deal was reached after Senate Democrats, who hold the majority, agreed to drop demands that the package include an extension of unemployment insurance, assistance for home heating, and tax credits for renewable energy. Republican opposition to those provisions had prevented the plan from advancing by one vote on Wednesday night.

The stimulus package, expected to be signed by President George W. Bush within a week, involves a combination of measures aimed at boosting the ailing US economy. Gross domestic product growth slowed to an annual pace of 0.6 per cent in the fourth quarter and recent data on employment and business sentiment have increased fears of a recession this year.

To boost consumer spending, the government will send rebate cheques of at least $300 to more than 100m people, including low-income senior citizens and disabled veterans. Businesses will benefit from tax breaks that could encourage them to buy more equipment.

“We stand here at the precipice of a fairly severe economic downturn and we must do whatever we can to ensure that the severe effects of that downturn are mitigated,” said Chuck Schumer, the Democratic senator from New York, just before the 81-16 vote.

He said the failure to include items such as extra unemployment benefits meant the legislation was not as strong as it could have been. Many Republicans contended that the additional spending was not justified.

Hank Paulson, the US Treasury secretary, has been urging Congress to move quickly to pass the legislation, to preserve a timetable allowing the rebate cheques to be mailed out by May.

Mr Paulson said on Thursday night: “I congratulate the Senate leaders for their quick action to pass a bipartisan economic growth package that is temporary, broad-based and will get money into our economy quickly.”

While the House of Representatives passed its own version of a stimulus bill last week, it was expected rapidly to endorse the Senate’s legislation, which is similar to the House’s plan but includes benefits to seniors and disabled veterans.

Most economists say the impact of the stimulus package is unlikely to be felt in the economy until at least the third quarter of 2008.

Payment of the rebate cheques will phase out for people earning more than $75,000 a year and couples earning more than $150,000 a year, reflecting a consensus among many policymakers and economists that people with lower incomes are more likely to spend quickly.