Statements and Speeches

On the Economic Stimulus Package

Statement in the Congressional Record

Jan 30 2008

Mr. President, it is almost 2 o'clock. This afternoon, as I understand it, the Senate Finance Committee is beginning to convene and to gather to debate the economic stimulus package which has come over to us from the House and to see what changes, if any, we might want to make in the Senate. I wish them good luck and Godspeed.

If you look at the history of stimulus packages in this country--I came to the House in 1982, was here for a while, went off to be Governor of my State, and came back at the beginning of this decade. But the history of stimulus packages is, sometimes we seem to pass them, and we have passed them after some delay. We have passed them actually after we have not only gotten into a recession, but we were actually coming out of a recession. And rather than being helpful as you go into a recession, turning things around, the stimulus package can be inflationary, an after-the-fact thought, and not all that timely, not all that helpful.

When we hear advice from economists and others on putting together a stimulus package, we hear the three Ts. The first of those is "timely." And the House has acted in a very timely way, working with the administration, to put together a package, not a bad package. I commend Speaker Pelosi and Secretary Paulson for the work they have done. It is not a perfect package, but I do not know that any of us could draw up a package that would be.

It is timely. It has come to us expeditiously. It has come to us on a day on which I believe the Federal Reserve is meeting to discuss whether they might want to lower the Federal funds rate by another quarter or half a percent on top of the three-quarters of a point reduction they adopted actually a week and a half ago.

A second piece of advice we have always gotten from economists and policy wonks on recession stimulus packages is, not only should it be timely, but it should be targeted; that is, the money should go to those places where the money will not simply be taken by whoever receives the benefit of a stimulus package and save more money, but would actually take the money and put it back into the economy to help get the economy moving.

I heard earlier today some discussions going on in the Budget Committee. One of the witnesses was saying he was rather skeptical and dubious of a stimulus package and said it is like the Federal Government borrowing money and taking that money out of one pocket and putting it in the other.

If we simply take the money from a stimulus package that the Federal Government might try to infuse into the economy, we give it to people who put it into their pockets who are just going to save the money, I do not know that we do a whole lot of good in stimulating the economy. That is not to say we do not need to save more money in this country of ours; we do. But I am not sure in the near term that is going to help move the economy. So the idea behind this stimulus package is, it ought to go to folks who need the money, who will spend the money. In some cases people are desperate for the money, people who might be desperate to feed their families, desperate to pay their heating bills in the winter. But they are going to take that money, whatever it might be, and infuse it, put it back into the economy quickly.

The third T that we have heard a whole lot about is the T for "temporary," the notion here being that we face a significant budget deficit. We do not want to prolong that or make it worse long term. We do not want to dig an even deeper hole than we are in as a result. We want the stimulus package to be of a temporary nature, to help us avoid a dip, avoid a recession if we can. And if we are going to have one, to make it shorter than would otherwise be the case.

The package that has come to us from the House has a good deal recommended. I have never been wild about tax rebates, but I think I supported one back in the earlier part of this decade about 3, 4, 5 years ago. But the package that we have on tax rebates from the House actually is pretty well targeted.

As I recall, there is maybe a $1,200 rebate that would go to folks, to a family, if you have two bread winners in the family. For an individual, it would be $600. There is a cap if your income is above a certain level, maybe $150,000 for a family, about half that or so for an individual. If your income is above those levels, you don't receive the rebate. We can quarrel whether $150,000 is too high or too low. It is what it is. It is better than having no cap at all. There are some who believe we should simply send out a rebate to everybody, $1,200 for a family and $600 for an individual. The problem with doing that is, it is little bit akin to taking money from the Federal Government out of one pocket and putting it into the pocket of another family who is not going to spend the money. They are not going to put the money back into the economy. They may save it. That is all well and good, but it is not going to do much to stimulate the economy.

My hope is the Finance Committee will decide we will have a rebate and make sure it is targeted to those folks who are the most in need of some financial help and that any tax rebate we do reflects that. We had economists in recent weeks who have said to us, in testimony and other public forums, we can actually gauge what bang for the buck we get out of Federal stimulus dollars. We are told that if we actually put money into extending unemployment benefits, we get about a buck 75 for every dollar of stimulus we provide. If we put that money toward folks to increase slightly their food stamps, it is about the same. For every dollar we put into that, we get about a buck 75. We don't get quite that kind of return on a tax rebate, particularly if there is no cap. If there is a cap and the money is directed toward lower income folks, it is a better bang for the buck than would otherwise be the case.

My hope is that as the Finance Committee considers what kind of package to put together, they will make sure there is some kind of reasonable cap on any tax rebate we send out.

With respect to unemployment benefits, it makes a lot of sense to extend unemployment benefits, but I would target them. I would especially target them to States where levels of unemployment are high. I think about Ohio. My heart is still with the Buckeyes. They are going through a tough time. As to the folks up in Michigan, I am a huge Detroit Tigers fan, but I also care about the people there and other places where unemployment rates are 8, 10 percent and where people are in some desperate straits. I hope we would target the unemployment benefits that we will extend, whether it is 13 weeks or 26 weeks, to particular places such as those States. For States that are enjoying economic good times, where the rate of unemployment might be 2 or 3 or 4 percent, we ought to be careful about extending unemployment benefits. Certainly, 26 weeks doesn't make a lot of sense to me in those cases. Under current law, people are already eligible for 26 weeks of benefits, and in places of low unemployment, I don't think it makes sense to add another 26 weeks on top of that. If we had unlimited dollars, that would be well and good. But we have a deficit. It is getting bigger. The idea would be to target it accordingly.

The same thing with food stamps. In a perfect world, I would actually not argue for having food stamps as part of a stimulus package, even though we know it is actually a pretty good stimulus, and there is a need out there. Last fall, we debated in the Senate, as they did in the House, a farm bill. A big part of the farm bill is not just aid to farmers or conservation funding for farmers to conserve open spaces. It is not just helping commodity crops or specialty crops. A big part is nutrition funding, which includes food stamps. I would not say we are close to reaching a compromise between the House and Senate on the farm bill, but my hope is we will get there within a couple months. If we are going to end up including in the stimulus package some provisions dealing with food stamps, I hope we would not make it a long time. I think you could argue for maybe a 3 months' provision. We could come back and extend that if we wanted to, maybe at most 6 months. But I would urge us not to go much beyond that. What we should do is finish our work on the farm bill, work out a compromise between the House and Senate, something the President will sign, and address nutritional needs as part of the stimulus package we are talking about. With respect to food stamps, do that in the farm bill, not in the stimulus package. If we are going to do it in the stimulus, do it for several months, not a year or more.

The Federal Reserve has already done us a big favor in cutting the Fed funds rate, the rate of interest banks charge when they lend money to one another overnight. They dropped it down by three-quarters of a percentage point. That has an immediate effect, a significant effect. It sends a very hopeful signal not just to markets but to households and all kinds of folks who are in businesses needing credit. I commend the Federal Reserve. My hope is they take it a little further today and lop off another quarter percent. I don't know that they will do more than that, but that would be welcome.

In a way, we overestimate the importance of a stimulus package that we adopt. We spend a lot of time wringing our hands and trying to get it right, working out a compromise between all the different sides. In the end, the impact of our package from the Congress and the White House is actually modest compared to the impact you get from a cut in the Fed funds rate by the Federal Reserve of a full percentage point.

I close with maybe two or three points to keep in mind. One, in putting together a stimulus package, make it targeted, timely, temporary. Two, to do no harm, for us not to do something that is foolish. I would suggest that a tax rebate that goes to Warren Buffett and Bill Gates and the wealthiest people doesn't make a whole lot of sense in an age when the budget deficit is approaching $250 billion. Let's not do anything foolish, do no harm. And three, maybe one of the best things that can come out of a stimulus is to convey to the folks who are struggling or having a tough time making ends meet, maybe aren't very hopeful, that we can work together. Even in an election year, a lot of politics in the air, we can set differences aside and come together on a package which makes sense, which will be helpful to a lot of folks and to either help us avoid a recession or maybe make it more shallow and of shorter duration.

Among the pieces of the House package that I thought were most meritorious was some stuff people don't think about very much. One of them deals with something called GSEs, government-sponsored enterprises. There are about three that I think a fair amount about. One is Fannie Mae. The other is Freddie Mac. The other is the Federal Home Loan Bank system which raises money for lending for home ownership. There is a proposal that would allow the government-sponsored enterprises, the big financial behemoths of Fannie Mae and Freddie Mac, to have larger mortgages in their portfolio than they are currently allowed. I think they are currently allowed roughly $400,000, and there is a suggestion that they be able to take on loans to $700,000 or so. That is fine to do for a short period. I don't think we should make it permanent. I don't think we should do it even for a year. The reason is, we need to come back and provide a strong independent regulator for Fannie Mae and Freddie Mac. If we simply make this change to allow them to put larger mortgages in their portfolio, it is a little bit like saying you, eat your dessert, but you don't have to eat your vegetables.

That is all well and good. They would like to be able to buy larger home mortgages and put them in their portfolios, high-cost places such as California and some places in the Northeast, but at the same time they need to eat their vegetables, and they need to have a strong, independent regulator who will be there to set the right kind of capital standards and to ride herd on these entities to make sure they don't get into trouble and, by doing so, get the rest of us in trouble.

The other thing we need to do--and I don't think it is part of the bill the House has sent us, but it might be--deals with FHA, the Federal Housing Administration. FHA is 75 years old this year. Sometimes people wonder, where did we ever get this 30-year fixed rate mortgage that people could prepay. Where did it come from? It came from the FHA. It has been around a long time. FHA was the birthplace of what we think of as the traditional mortgage. The FHA, as recently as a dozen or so years ago, was involved in mortgages that went to maybe 20 percent of the homes being bought and sold. Twenty percent used FHA. Today it is about 5 percent. The difference between that 20 percent and that 5 percent for the most part is people have gone into the subprime market, and they have gotten these adjustable ARM mortgages.

People have been lured by teaser rates. Now these adjustable ARMs are resetting. It might have been a teaser rate of 2, 3, 4 percent. They are now going at 7, 8, 9 percent. The folks who got into these exotic mortgages are finding they can't refinance, and they are stuck with some kind of significant penalty or maybe being stuck altogether. What we need to do is bring the FHA of the 20th century into the 21st century and make it relevant for folks looking to buy a house today. We passed legislation in the Senate. They are actually not that far apart. We reduced the amount of downpayment from 3 percent to 1.5 percent for an FHA loan on a home mortgage. And we do some things. We require folks to get the kind of counseling they need. We do a better job on reverse mortgages. When people are old and their houses are basically paid for, they can actually live on the equity of their home for the rest of their lives. The idea would be to make those more readily available to people who could use that kind of help later in their lives.

There are a variety of other changes in the FHA that need to be made to make it relevant for today. Those are examples of some.

As much as anything that we would do in the stimulus package that is being debated right now in the Finance Committee, we need to come to closure on reauthorizing the FHA and bringing it into the 21st century. While we are doing that, we need to go ahead and raise the cap on the amount of loans, the size of the loans and mortgages that can be bought and put into the portfolios of Fannie Mae and Freddie Mac, but only for 6 months, with the idea that between now and 6 months from now, the House and Senate will hammer out a compromise, signed by the President, that will provide for a strong, independent regulator for Fannie Mae and Freddie Mac, for Federal Home Loan Banks. If we do all that, we will convey not just a sense of hope, but we will do something that goes beyond a mere stimulus for a couple months. We will address the underlying problem that got us into this mess, the subprime lending mess in the first place because what we will do is say to the folks who have marginal credit, who otherwise would maybe have to rely on these exotic mortgages, these adjustable ARMs, instead of having to rely on something such as that, they can rely on the FHA, as people have done for a generation, because we have made it relevant for your lives and for your needs.

That is the view from Delaware today. My hope is some of that will be prevailing later today in the Senate Finance Committee, and we will have an opportunity to take it up and debate it tonight and tomorrow.