WASHINGTON — The Bush administration and leaders of the House of Representatives agreed Thursday on a plan to provide almost $100 billion in tax rebates to 117 million taxpayers and another $40 billion in tax reductions for businesses in a bid to avert a recession.
Individuals with adjusted gross incomes of $3,000 to $75,000 would get rebates worth $300 to $600. Joint filers with annual incomes up to $150,000 would receive up to $1,200. Individuals and families that earn more than those limits would get rebates that decline as their incomes increase. Families also would get bonuses of $300 per child, except for families that earn more than $186,000.
The Senate must draft its own version, and if congressional leaders get a final package to President Bush by Feb. 15 as promised, millions of Americans could begin getting some extra cash by mid-May.
"Within roughly 60 days (after enactment) more or less, we will be able to begin making payments," said Treasury Secretary Henry Paulson, who helped broker the bipartisan deal in a marathon closed-door negotiation. "I believe we can get the lion's share of these payments done in something under 10 weeks from the time we start mailing them."
In Columbia, S.C., store owner Lou Maiorano said that "$600 will just pay for the gasoline the next couple of months." He welcomed the money, but said "by the time Treasury sends out checks it'll be summertime. What'll we do till then?"
The plan's goal is to spur spending through tax cuts for employers and rebates for consumers, whose spending drives about two-thirds of U.S. economic activity.
"The incentives in this package will lead to higher consumer spending and increased business investment this year," Bush said in a statement at the White House.
The earliest the U.S. economy would see a boost from the rebates would be late May to June. By then, it should be clear whether the economy is in recession. If it is, the stimulus will have missed its mark. If it isn't, the modest bump expected in consumer spending should help keep the economy growing.
Bush initially sought to provide refunds only to Americans with taxable income, but agreed to a Democratic plan that would reach another 35 million lower-income Americans.
The result would be an even greater stimulus, suggested Mark Zandi, chief economist for forecaster Moody's Economy.com. The compromise announced Thursday would generate $1.26 in spending for every dollar of tax rebate, or 24 cents more per dollar than the administration's original proposal, Zandi estimates.
Wall Street welcomed the developments, posting a second day of gains after five days of steep losses. The Dow Jones Industrial Average closed up 108.44 points at 12,378.61, while the NASDAQ was up 44.51 points to 2360.92 and the S&P 500 closed up 13.47 points at 1352.07.
The U.S. Chamber of Commerce and other business groups cheered the inclusion of almost $50 billion in tax reduction measures that would allow them faster depreciation and more generous expensing of equipment.
"It will go a long way to spurring investment and increasing productivity, two key ingredients to putting us back on the path for economic growth," said Thomas Donohue, the chamber's chief executive officer.
The House plan addresses one of the biggest drags on the U.S. economy, the deepening housing slump. It does so with housing-sector provisions that are important for California and other high-priced real estate markets such as the Northeast and coastal states.
It would raise the loan limits temporarily for the quasi-government entities Fannie Mae and Freddie Mac. Until now, these entities couldn't buy and package mortgages larger than $417,000. This limit locks out much of California, where the median home price is more than $500,000 and foreclosures and mortgage delinquencies are sky-high.
If the plan isn't substantially changed in the Senate, Fannie and Freddie will be able to work with loans as large as about $730,000.
The House plan would permanently increase the maximum loan size for mortgages backed by the Federal Housing Administration from $367,000 to $729,750.
Both measures would provide more opportunities for homeowners in high-price areas to refinance.
House Speaker Nancy Pelosi, D-Calif., agreed not to extend unemployment insurance or expand food-stamp programs at this time. Senate Majority Leader Harry Reid, D-Nev., and other Senate Democrats are expected to fight for expanded unemployment benefits and other spending left out of the House compromise.
"We know the Senate is very important and they're going to go through their own deliberations. But I think the American people are not going to have a lot of patience for taking time," Paulson said. "The House has set a standard."
Democrats said the compromise would provide a greater stimulus because it would put money in the hands of lower-income households, which were sure to spend the entire rebate.
"Not only is it more fair, but it's a more effective stimulus," said John Irons, the policy director for the liberal Economic Policy Institute. The institute thinks that 1.4 million jobs could be created, while the Bush administration suggests a more modest 500,000.
Any tax rebate will be good news for many Americans struggling under the weight of rising gasoline prices, a 4.1 percent consumer inflation rate last year — the highest since 1990 — and declining personal wealth thanks to a slumping stock market and sinking home prices.
The agreement reached Thursday has three main parts:
1. Tax rebates for workers: Some 117 million Americans would get rebate checks. They'd get the greater amount as computed in one of two ways:
The rebates would be sent by check, and there's no need to apply. They'd be sent automatically.
2. Tax benefits for employers:
(David Lightman contributed to this article from Columbia, S.C.)