WASHINGTON — As Congress and the White House craft an economic stimulus package, there's growing concern that it can't be enacted and implemented quickly enough to forestall a recession.
President Bush is calling for an estimated $140 billion stimulus package that includes one-time tax rebates to spur immediate spending and tax breaks for businesses to spur investment. Democrats want additional measures, including more money for Medicaid, extended unemployment insurance, increased food-stamp benefits and higher Social Security payments.
In a report outlining several stimulus proposals, the Congressional Budget Office said that the most effective policies boost economic activity as much as possible and as fast as possible.
"If the policies do not generate additional spending when the economy is in a phase of very slow growth or a recession, they will provide little help to the economy when it is needed," the report concluded.
Both sides have pledged to work quickly to enact a package, but even if they succeed, getting the cash out of the federal bureaucracy won't be easy.
The Internal Revenue Service has already begun processing 2007 tax returns, and it's reprogramming its computers to comply with changes in tax law that Congress passed late last year, which means that the IRS probably couldn't begin mailing any rebate checks before late spring. Short-term payroll tax holidays would be even harder for the IRS to process quickly. It would take the Social Security Administration, which has an outdated computer system, at least six weeks to begin distributing additional money to retirees. And new federal public works or other projects designed to stimulate the economy generally "require years of planning and preparation," the CBO said.
It's not clear, then, whether the federal government can act fast enough to prevent or even cushion a recession, or whether the effects of any stimulus plan would be felt when the economy was already recovering.
While the proposed tax rebates echo what the Internal Revenue Service did for taxpayers in 2001, those checks were issued after the bulk of income tax filings had been processed.
This time, the tax-filing season has just begun.
"Obviously, we're recognizing the fact that we're in the current filing season," said Andrew DeSouza, a Treasury spokesman. "We've already begun talking with the IRS."
To further complicate matters, the IRS is reprogramming its computers to comply with the alternative minimum tax legislation that Congress passed late last year. The new law, a temporary one-year fix, has forced as many as 13.5 million taxpayers to wait until mid-February to submit their returns.
Those late returns will keep the IRS busy, meaning any new tax rebate checks wouldn't start being mailed until May or June, when most of the other returns have been completed, said CBO Director Peter Orszag.
The process would take eight to 10 weeks, Orszag said, so some consumers wouldn't get their rebate checks until late summer.
Whether that will be too late to head off a recession is uncertain. But the prospect recalls the 1974 recession, when tax rebates didn't take effect until March 1975, when the economy was already recovering.
Democrats in the House of Representatives are trying to get a measure passed during the first week of February. It would then go to the Senate and have time to get to Bush before the Presidents' Day break. The parameters of the plan have solidified in recent days, and both parties have agreed informally to include a rebate package, increased food-stamp benefits, extended unemployment insurance and business depreciations. It's unclear whether more Medicaid funding would be included.
Many other stimulus ideas require other government entities to alter or increase existing payments.
Presidential candidate Sen. Barack Obama, D-Ill., has called for giving working families $500 tax cuts and increasing every senior citizen's Social Security check by $250.
The Social Security Administration sends out nearly 50 million checks per month, but its computer systems have needed updating for many years.
Nevertheless, Social Security Administration Commissioner Michael J. Astrue said supplement checks could be processed and distributed in about six weeks.
"These types of requests will impose a lot of stress on the agency until Congress authorizes a major overhaul of our systems, but our employees have a can-do attitude," Astrue said.
Temporary tax reductions also are being considered as a way to improve economic activity. These proposals include across-the-board cuts in income tax rates and payroll tax "holidays" that cancel employee payroll withholding for a specific period of time.
The CBO report, however, said short-term payroll tax holidays present greater administrative problems and are harder for employers to implement than across-the-board cuts in income tax rates.
"Turning withholding on and off introduces more opportunity for error, and significant penalties can attend the failure to remit the proper amount of payroll taxes. Consequently, payroll administrators may take greater time in ensuring that payroll tax changes are undertaken properly," the CBO report said.
While direct government payments likely would spark immediate spending, other government proposals designed to stimulate the economy, such as public works projects, would require long start-up times.
"Large-scale construction projects of any type require years of planning and preparation. Even those that are 'on the shelf' generally cannot be undertaken quickly enough to provide timely stimulus to the economy," the CBO report warns.
(Kevin G. Hall and Renee Schoof contributed to this report.)
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