Central Valley

UC Merced professor: Economic plan works only if people spend

A UC Merced professor said economists agree that the government needs to do something to jump-start the economy, but whether the newest stimulus plan works ultimately will be up to those officials are trying to help.

Congressional leaders announced a deal with the White House on Thursday on a package that would give most tax filers refunds of $600 to $1,200, and more if they have children.

Todd Neumann, an assistant professor of economics at the University of California at Merced, said there is consensus among economists that a stimulus is needed, but its success will depend on whether people actu-ally spend the checks and how quickly.

"A big factor in that is, typi- cally, who you give the money to," he said. "If you give it to a family or an individual who is uneasy about the coming econ-omy but isn't directly affected, you might expect that person to save the money. On the other hand, if it goes to someone who is already feeling the effects or has lost a job, you would traditionally expect that person to spend money more quickly."

People who pay income taxes would get up to $600, working couples $1,200 and those with children an additional $300 per child under the agreement. Workers who make at least $3,000 but don't pay taxes would get $300 rebates.

The rebates, expected to go out in May, would cost about $100 billion, congressional aides said. The package includes close to $50 billion in business tax cuts.

Rep. Jerry McNerney, a Democrat whose district includes southern San Joaquin County, said in a news release that, while there are things he would have liked to see in the package, the important thing is to act quickly.

"The goal is to create a package that is timely, targeted and temporary. The agreement, reached quickly and on a bipartisan basis, appears to achieve those goals," he said.

Rep. Dennis Cardoza's spokesman, Jamie McInerney, said the congressman supports the stimulus package, but was curious to see how the Senate tweaks the proposal. Cardoza, D-Atwater, was not available for comment.

"He wants to be a bit cautious until he sees how that plays out," McInerney said.

Rep. George Radanovich, R-Mariposa, offered no public reaction Thursday and did not issue a statement on his Web site.

McNerney expressed relief about the home loan provisions being proposed.

"Raising that limit will mean more people throughout California will have lower-interest loans, helping stabilize the real estate market and allowing more people to refinance into lower interest rate mortgages," McNerney said.

He also said he was disappointed that the agreement doesn't include extended unemployment benefits.

"So many people across the 11th District are facing difficult economic times," McNerney said, "it is critical that a bipartisan agreement has been reached and that we move as quickly as we can to stimulate the economy and prevent any further economic downturn."

The package would allow businesses to immediately write off 50 percent of purchases of plants and equipment and permit small businesses to write off additional purchases of equipment. A Republican-supported provision to allow businesses suffering losses now to reclaim previously paid taxes was dropped.

That part of the plan is less likely to prompt automatic spending, Neumann said, because businesses typically base spending decisions on more than simply having cash. Companies tend to spend to expand -- typically, when the broader economy expands. He said the stimulus would encourage companies to spend, but it is unclear whether that encouragement will outweigh a slowing economy.