House plan: Tax rebates, break on home loans

WASHINGTON — The Bush administration and House leaders agreed Thursday on a plan to provide almost $100 billion in tax rebates to 117 million taxpayers and about $50 billion in tax reductions for businesses in a bid to avert a recession.

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. Under the House plan, many in high-priced housing markets like the Seattle area would also get easier access to home loans.

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 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 King County and other high-priced real-estate markets, such as California.

It would raise loan limits temporarily above $700,000 for the quasi-government entities Fannie Mae and Freddie Mac, which fund the bulk of the nation's mortgages. Until now, these entities couldn't buy and package mortgages larger than $417,000, the so-called conventional-loan limit.

That's had a big impact in King County, where the median single-family home price has exceeded the $417,000 loan limit for more than a year. The median stands at $435,000, according to the Northwest Multiple Listing Service.

As a result, buyers who needed a mortgage above that amount often had to take out a jumbo loan or a two-loan combination. The higher costs of those loans priced some buyers out.

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.

Still, that won't be high enough for people buying the median-priced home on Mercer Island and in West Bellevue.

The House plan would permanently increase the maximum loan size for mortgages backed by the Federal Housing Administration (FHA) from $362,790 to $729,750. That higher amount would make FHA mortgages more available in high-cost King County, and would particularly benefit first-time and some credit-challenged borrowers.

Both measures would provide more opportunities for homeowners in high-price areas to refinance.

The stimulus package'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 at the White House.

A key component of the plan is how quickly it can get money to consumers.

"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."

The rebates would be sent by check, and there's no need to apply. They'd be sent automatically.

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 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 could 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 an additional 35 million lower-income Americans.

The result would be an even greater stimulus, said 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 estimated.

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 package gives companies a 50 percent bonus deduction on new equipment that would normally be depreciated over 20 or so years. The depreciation incentive is intended to encourage businesses to speed up investments in new software and equipment.

The package also doubles the limit on expenses to $250,000 that small business can write off as a deduction from annual income, with a total cap of $800,000.

As part of the deal, 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.

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 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.

Seattle Times reporter Elizabeth Rhodes contributed to this report.

Material from The New York Times is also included.