The Senate Finance Committee held hearings to discuss an economic stimulus package and hear testimony from the Congressional Budget Office about the available options.
"The most effective types of fiscal stimulus (delivered either through tax cuts or increased spending on transfer payments) are those that direct money to people who are most likely to quickly spend the bulk of any funds provided to them," said Peter Orszag, director of the CBO, in his prepared testimony.
Orszag noted that a rebate based on income tax liability would reach fewer families than a rebate based on payroll tax liability. "A large number of lower-income families incur no income tax, and many others pay more in payroll taxes than income taxes," he noted.
He also pointed out there are a variety of options for helping people who have been adversely affected by the turmoil in the mortgage market. But he pointed out that in evaluating the options, it was "important to strike a balance between helping financially distressed families meet basic needs, being fair to other families and not rewarding imprudent behavior that might create additional costs in the future."
The Joint Committee on Taxation also released a report providing an overview of how past tax legislation provided a fiscal stimulus, and on the issues involved in designing a cash rebate for individuals.
"Studies of the 1975, 2001 and 2003 tax rebate proposals have generally found that the rebates provided modest stimulus to consumption," said the report.
President Bush expressed optimism about the prospects of agreeing with Congress on a stimulus package. "I believe we can find common ground to get something done that's big enough, effective enough so that an economy that is inherently strong gets a boost-to make sure that this uncertainty doesn't translate into more economic woes for our workers and small-business people," he said.
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