Politicians close to US economy rescue deal

Democratic and Republican leaders appeared close to agreement with the White House today on emergency tax cuts and benefit increases to jolt the US economy out of its slump.

“We’ll have more to say tomorrow morning [Thursday],” House of Representatives minority leader John Boehner, a Republican, said. “We’re hopeful.”

Mr Boehner’s comments came as he left his third extended negotiating session, which lasted through the night, with House speaker Nancy Pelosi, a Democrat, and treasury secretary Henry Paulson. Another, perhaps final, meeting will be held today.

Democratic aides said greater Republican flexibility over giving income tax relief to poor families with children – who would not be eligible under President George Bush’s tax rebate proposal – had moved the talks forward.

Asked if agreement was near, Ms Pelosi said: “We’re moving towards that, but all the issues are not resolved.”

Politicians learned during the day that the government’s deficit would already swell to £125bn (€167bn) this year because of falling corporate tax revenues – then they signalled they were willing to balloon it higher by more than £50bn (€66bn) with a stimulus package.

As they met behind closed doors, Wall Street defined volatility, dropping again for most of yesterday before soaring to a big gain just before closing. The Dow Jones industrials ended the day up just under 300 points.

The government deficit, which has been dropping in recent years, could reach £189.5bn (€253bn) for 2008 – more than twice last year’s red ink – once the costs of the economic rescue measures are factored in, said House Budget Committee chairman John Spratt, a Democrat.

“We should act, and act now, to strengthen the economy … mindful, however, of the long-term budget challenges, the structural deficits that we face unless we act and act seriously,” Mr Spratt said.

President Bush expressed optimism about quick action.

“I’m confident that we can get something done,” he said in brief comments to reporters. “There’s a spirit that says we need to take a fundamentally strong economy and help it.”

The economic growth measure would add about £58bn (€77bn) to the deficit for the budget year ending October 1, according to back-of-the-envelope calculations by Mr Spratt. All sides agree that the stimulus measures should be temporary.

“Whatever we do is going to have a 12-month shelf life,” said House majority leader Steny Hoyer, a Democrat.

Worries about the ailing economy trumped concern over the deficit as top House leaders and Mr Paulson met three times during the day, tallying up the cost of various proposals for tax rebates, business tax cuts and benefit increases, including unemployment compensation and food aid.

In the Senate, Democratic leader Harry Reid and Republican leader Mitch McConnell have agreed to stand back and let the House take the lead in the talks with the administration.

The aim is to have legislation ready for Mr Bush to sign in just a few weeks, lightning speed for tax and spending measures that can take months or even years to win approval.