By Kelley Atherton
Triplicate staff writer
The stock market epidemic spread to foreign markets Monday, inciting a Federal interest rate cut. The test will be whether our elected officials can work together to avoid a recession.
While the U.S. market was closed in remembrance of Martin Luther King, Jr. Day, other major markets went on a selling frenzy. The result was a drop in stock prices worldwide: 7 percent in Germany and India, 5.5 percent in Great Britain, 5.1 percent in China and 3.9 percent in Japan.
This chain of events led the Dow Jones Industrial Average to open Tuesday down 465 points. The Federal Reserve came to the rescue, cutting the federal fund rate (rate banks lend to each other) by nearly a point from 4.25 to 3.5 percent. The Dow Jones rebounded and closed down 128.11, while the Nasdaq composite index was down 47.75 and the Standard and Poor's 500 index was down 14.69.
The solution to our floundering economy is not simple and will not be easy. It will take time and good leadership from our government. A defining issue of the 2008 elections will be the candidates' stance on the economy.
Last Friday, President Bush announced his proposal for a economic stimulus package during a press conference. His objective is to jump-start the slow-moving economy and create more jobs.
The growth package should be at least one percent of the Gross National Product, $140 to $150 billion, and include tax relief across the income board, he said. Absolutely no tax increases, he stressed, but rather tax incentives for businesses.
"Giving them an incentive to invest now will encourage business owners to expand their operations, create new jobs and inject new energy into our economy in the process," Bush said.
In addition, tax relief for consumers would allow those struggling each month to help pay their bills or spend more money to give the economy a boost.
A Washington Post analysis states that Bush's plan would reduce the 10 percent income tax bracket to zero for one year. This means that single workers wouldn't pay tax on the first $8,025 of taxable income, and a married couple wouldn't pay anything on the first $16,050. This would save taxpayers $800 and $1,600, respectively.
There are several issues that politicians don't agree on, including the fact that the tax rebates will not cover those who don't pay income taxes, such as the elderly on a fixed income or those who don't make enough money.
Senate Finance Committee Chairman Sen. Max Baucus, D-Mont., suggested that a fiscal stimulus would have more of an impact. For example, cutting federal taxes or increasing federal spending. Also on the committee, Sen. Charles E. Grassley, R-Iowa, said that in order to put money into the hands of the people, spending has to be cut somewhere else.
Bush presented a worrisome omen of high taxes to the American people and to Congress if they don't act soon.
"The marriage penalty will make a comeback, the child tax credit will be cut in half, the death tax will come back to life, and tax rates will go up on regular income, capital gains and dividends," Bush said.
Congressional leaders support pushing an economic package through quickly before the President's Day recess next month. Even if Congress compromises on a deal in three weeks and Bush signs it, it would still take four to five months for rebate checks to arrive.
The economy's downturn in the midst of a presidential election is a chance for bipartisan leadership, to prove that politicians can work together for the same goal.