WASHINGTON, Oct. 3 (UPI) -- Treasury Secretary Paul O'Neill told Congress Wednesday President Bush wants a stimulus plan of between $60 billion and $75 billion to avert a severe recession triggered by last month's terrorist attacks.
O'Neill told the Senate Finance Committee he expects negative real growth in the current quarter, but that perhaps a real a real growth rate of 1 percent to 2 percent in the fourth quarter.
"The depth of this contraction, as well as the pace at which the economy returns to a healthy rate of growth, will depend in large part on how fast consumers regain their confidence and our success in incorporating new protections against possible terrorist acts without material reductions in productivity," he said in his prepared remarks.
O'Neill said the president asked him to work with Congress to develop an additional $60 billion to $75 billion stimulus plan for fiscal 2002.
That figure is $10 billion higher than estimates by Senate Majority Leader Tom Daschle, D-S.D., who on Wednesday said Congress has been discussing a package in the "$50 billion range."
However, O'Neill warned lawmakers any stimulus package intended to help the nation recover from the September terrorist attacks and faltering economy should not be so large as to cause upward pressure on interest rates.
He also told lawmakers the previously enacted tax cuts also will help sustain growth and that the nation's economic fundamentals remain strong for the future.
But he did not argue with the need for a package to restore consumer confidence, spur investment and repair the attack's damage to certain industries and the buildings themselves.
"The president believes, and there seems to be broad bipartisan agreement in Congress, that we should take care not to put upward pressure on long-term interest rates," O'Neill said. "It is clear that the components of the stimulus package are just as important as its size. I look forward to working with (Congress) to ensure that the package address three priorities: restoring consumer demand, supporting business investment and helping those affected by the Sept. 11 attacks."
Congressional Democrats, Republicans and President Bush appear to agree an emergency spending bill is needed to help repair the damage and spark the economy. The most common figure being floated as the different interest groups haggle out the composition of the package is $100 billion or about 1 percent of the Gross Domestic Product, a figure suggested by Federal Reserve Chairman Alan Greenspan.
Congress already has approved $40 billion for meeting relief needs and increasing security measures, and has provided $5 billion in direct relief to the airline industry with up to another $10 million in loan guarantees to follow.
Senate Finance Committee Chairman Max Baucus, D-Mt., said bipartisan efforts to develop the package would mean not everyone would get everything they want in the new spending, but outlined things that as chairman, he wants included.
These include extended unemployment benefits for laid-off workers and additional payroll tax relief to help increase paychecks over the short term. To encourage business investment, Baucus suggested changes in depreciation or increased expensing that would reduce the cost of acquiring capital. This last proposal runs counter to many Republicans who want a reduction in the capital gains tax rate and consider it the best way to stimulate investment.
"Out of political necessity, we will need to divide the package between investment incentives and consumer demand," ranking committee Republican, Charles Grassley of Iowa said. "Based on Chairman Greenspan's advice, I favor business incentives."
The first comprehensive economic data on September -- to be released on Friday -- was not expected to provide much information on the effects of the attacks, although forecasters expect it will show an increase from the August unemployment rate of 4.9 percent.
Since the Labor Department surveys reflect employment in the early part of the month, workers affected by the attacks presumably showed up on the payrolls and were counted as employees, he said.
"We shouldn't be surprised to see a further worsening when the October figures are released, as the post Sept. 11 layoff announcements are translated into actual job losses," O'Neill told the committee.
After the hearing, the top congressional leadership met with Greenspan again to discuss the ramifications of any stimulus package.
O'Neill's testimony comes a day after a top Bush administration official told the Senate the nation is entering a recession.
Glenn Hubbard, chairman of the Council of Economic Advisers, told the Senate Budget Committee that although the physical damage of last month's attacks was "horrible," that alone did not force the economy into a recession.
The disruption of the financial systems, loss of life and effect on commercial aviation sent an already teetering economy into a real slump, he said.
