What Kind of Stimulus Will Work?

Federal Reserve Chairman Ben Bernanke has given new life to calls for an economic stimulus package, but exactly what it will be is anybody's guess.

Bernanke warned in his testimony before the House Budget Committee on Monday that the economy is going to remain weak for some time to come, and he endorsed plans to provide a temporary boost.

"With the economy likely to be weak for several quarters, and with some risk of a protracted slowdown, consideration of a fiscal package by the Congress at this juncture seems appropriate," he said.

The presidential campaigns of Sen. Barack Obama, D-Ill., and Sen. John McCain, R-Ariz., have been pushing their own solutions to fix the ailing economy (see McCain, Obama Propose Measures for Economic Crisis). Congressional leaders may try to act before the next administration takes office, but it will probably be difficult to pass legislation before a new Congress and president are in place. That is, unless another crisis mentality takes hold in Washington, which allowed the Emergency Economic Stabilization Act to pass a few weeks ago after around-the-clock fighting and lobbying.

Exactly what will be in the stimulus package will be intensely debated no matter who gets elected next month. Will it include another round of stimulus checks, like the ones we saw earlier this year from the IRS? They provided a temporary boost for a quarter or two, but nothing that lasted long enough to avoid the current economic meltdown. How about extensions of unemployment benefits? With job losses continuing and predicted to get worse, calls for help are growing louder.

What about money for infrastructure to help create jobs? That could be in the package, but fiscal watchdogs are already sounding alarms about not letting pork barrel projects get into the mix. How about further tax cuts? They're always a popular suggestion, but whether those tax cuts will be on capital gains, dividends, or 401(k) withdrawals will probably depend on which political party has the most leverage when the dust settles.

Stimulating the economy is going to be a major job for whoever is left in Washington come November. Accountants will also play a role. The Treasury Department has just named PricewaterhouseCoopers and Ernst & Young to help administer its Troubled Asset Relief Program. While it's hard for smaller firms to compete with Big Four firms, clients are going to be calling on their accountants to help them figure out how to hold on to their troubled assets too. Good advice in a crisis is always in short supply, but it's also a way to cement a trusted relationship.