January 16, 2008

Paulson: Fiscal stimulus should be quick, temporary

WASHINGTON (Reuters) - Treasury Secretary Henry Paulson said on Friday that any economic stimulus program should be temporary and designed to kick in quickly if it is to be useful.

"Time will be of the essence," Paulson said on Bloomberg Television's "Political Capital with Al Hunt" program. "So I think we want to do something as quickly as possible if we do it."

Paulson conceded that U.S. economic growth "is slowing down rather materially," but insisted that he still thought it would keep growing rather than fall into recession.

Though Paulson said U.S. President George W. Bush was still undecided as to whether any stimulus is needed, his remarks left little doubt that the White House is mulling such measures.

"The president is focused on the risk and has his economic team looking at the risks and what we can do to help the economy this year," Paulson said.

Bush is scheduled to deliver his annual State of the Union address to Congress on January 28 and that is widely regarded as the most likely venue for proposals that Paulson said would have to be temporary.

The Bush administration is a long-term champion of lowering taxes and wants to make tax reductions from 2001 and 2003 that are scheduled to expire in 2010 permanent. But Paulson conceded a Democratic-controlled Congress was unlikely to do so.

"It's going to be easier to get something done on a temporary basis," he said. "We've not been able to persuade Congress to make the tax relief permanent. If something were to get done here, I think the focus would be on something that's temporary and that could get done and make a difference soon."

Speculation has centered around some type of tax rebates for individuals, which would spur spending, or tax breaks for businesses that would be targeted to additional investment.

Paulson, however, sounded less upbeat about the economy, despite saying he thought it would avoid recession.

"The economic news is mixed," he said. "There are risks to the downside."

Earlier this week, Federal Reserve Chairman Ben Bernanke also sounded a bleaker note about the economy's prospects, indicating the U.S. central bank stood ready to cut rates further to counter what he saw as rising downside risks from a severe housing downturn and credit market turmoil.

Bernanke's pledge to employ monetary policy more aggressively to avoid recession effectively raised the stakes on the Bush administration to do all it can to add fiscal stimulus, especially with the November presidential vote on the horizon.

Already on Friday, Democratic presidential nominee Hillary Clinton proposed a $70 billion package of emergency spending, targeting it toward helping low-income families hurt by the mortgage crisis as well as aid poor and unemployed Americans.

No comments: