Bush plan: rebate or payment?

WASHINGTON — As President Bush and congressional Democrats begin negotiations on a package of measures to stimulate the economy, the big fight will be over whether to put extra money in the hands of tens of millions of low-income families who paid little or no income tax last year.

Nearly 40 percent of Americans owed no federal income tax last year, though even low-income workers paid taxes for Social Security and Medicare. While Bush has refused to disclose specifics of his $145 billion plan, administration officials and Republican lawmakers favor a proposal that would offer rebates of up to $800 for individuals and $1,600 for families — but only if they paid that much in taxes last year.

Analysts estimate a family of four with an income of $24,000 would receive nothing, and families with incomes below $40,000 would at most receive partial rebates. But a household with an income of $100,000 or more could get back $1,600.

"The president again is focused on broad-based tax relief for those who are paying taxes," said Treasury Secretary Henry Paulson when asked at a news conference Friday whether "everybody" would get a tax break.

Administration officials and Republican lawmakers say it only makes sense to give tax rebates to people who actually paid taxes.

"You have to be a taxpayer in order to get a tax rebate," said Rep. Paul Ryan, R-Wis., a member of the House Ways and Means Committee. "The White House is very clear that this is for people who pay taxes."

But Democrats are gearing up to fight that approach, arguing that a stimulus plan should put money in the hands of low-income people, both as a matter of fairness and because people who are struggling to make ends meet are most likely to spend any government payments quickly. For the purpose of jump-starting the economy, economists want people to spend extra money quickly.

On the presidential campaign trail, Sen. Hillary Rodham Clinton of New York and former Sen. John Edwards, of North Carolina, attacked the Republican approach for excluding people who need help the most. Sen. Barack Obama of Illinois has already proposed a $90 billion program of rebates and supplemental Social Security payments that his aides said would reach 95 percent of workers.

Robert Greenstein, director of the Center on Budget and Policy Priorities, a liberal research group in Washington, estimated that under the Republican plan as many as 65 million Americans with low or modest incomes would miss out on part or all of the payments.

"This approach fails on two counts," he said. "It omits or partly omits those who need the help. And it omits the tens of millions of people who are living paycheck to paycheck and who would be most likely to quickly spend every dollar they can get."

In Washington, Democratic lawmakers and senior administration officials were working on a fast compromise. Bush refrained from insisting on any specific measures.

Democratic aides in Congress said a compromise would have to include money for low-income people, either through tax rebates or temporary increases in anti-poverty programs like unemployment benefits and food stamps. For Republicans, a compromise would mean including tax incentives for business investment — a demand that Democratic leaders said they were open to discussing.