Cash bonanza for US taxpayers as Bush gives away £80bn tax refund

THE American government has approved a plan to give the people what they most want – free money.

Congress has agreed a gigantic £80 billion tax rebate, enabling nearly every single taxpayer to get a £300 cheque in the post.

Both Democrats and Republicans have endorsed the giveaway, the first of its kind, which they say will provide a flurry of spending to stave off an expected slump.

Americans fear a recession may be looming given a freefall of housing prices, tightened credit and sharply lower stock prices.

The economy has surpassed the war in Iraq as the main worry of US voters.

Petrol prices that are far higher than the relatively inexpensive cost Americans are accustomed to had the electorate complaining for more than a year.

But many suspect the giveaway, agreed on Thursday night, is more to do with buying votes in the run-up to this year's presidential election, and some economists doubt the package will have the desired effect.

The plan also leaves a giant hole in the US budget, already facing a near-record deficit.

President Bush first proposed the giveaway earlier this year, arguing that a stimulus package would work better if the people, rather than the government decided where it was to be spent.

"We are in a period of economic uncertainty and we've acted again," Bush told a conservative conference in Washington yesterday.

"I want to thank the members (of Congress] for passing a good piece of legislation, which I will sign into law next week.

"This bill reflects our principles. It is robust, it is pro-growth, it stimulates business investment and it puts money into the hands of American consumers," he added.

Democrats quickly approved the idea, either because they believed it will work or because they feared voters might otherwise turn against them.

And this week they pulled back on demands to increase the programme still further, dropping calls for extra money for the unemployed and food stamps for the poor.

As a result, and in near record time, the stimulus package will become law when, as expected, Mr Bush signs it early next week.

This timetable will ensure that 130 million taxpayers get their cheques in May, when many economists predict America will be in the middle of full-blown recession.

But many doubt that this is the best way to stimulate the economy.

This cash will not be found by savings, but by borrowing the money which future Americans will one day have to pay back.

"We'll probably end up borrowing the money from the Chinese," said Republican presidential candidate Mike Huckabee. "And when we get these rebate cheques most people are going to go out and buy stuff that's been imported from China. I have to wonder who's economy is going to be stimulated the most."

But Huckabee is a lone voice among presidential candidates from both parties, most of whom do not want to be seen to be objecting to a measure that puts cash in the hands of voters.

Officially, Congress hopes that the rebate, which includes an extra £150 for every child a family has, will inject money into an economy slowing fast under the effects of the sub-prime housing crisis.

But this cash giveaway will widen still further America's huge debt, a debt already facing controversy – because this week President Bush presented America's first $3 trillion budget.

The budget does not include spending on Iraq beyond America and slashes costs of health care for the poor and elderly, but still leaves America with a $407 billion debt, only a shade off the record debt of $413 billion dollars from the 2004 budget.

And the true level of Federal spending will be higher still, because Bush has not budgeted funding for the Afghanistan and Iraq wars, now costing £5 billion per month, beyond December.

Meanwhile the elderly and the poor will be furious that their already pared-down medical benefits, much of it already paid through social security contributions, will be further cut.

And many voters worry that the stimulus plan, adding another $168 billion to this bill, leaves the country ever further in the red.

"If the money was coming from cuts in spending that would be a different story," said Paul Krasucki, a manager in a New York softwear company. "But stimulating the economy by getting further into debt, that's not a stimulus."

Administrator Maria Garcia was more positive, saying that with the country falling into recession every little bit helps. "I'm not going to spend it, I'm going to save the money in the bank."

DARLING NOT TO FOLLOW ON
ALISTAIR Darling, the Chancellor, yesterday rebuffed suggestions that other countries would follow the US example and cut taxes or increase spending to avert a worldwide recession.

Britain and other members of the G7 group of leading industrialised countries are expected to reject such measures.

"The first thing is that conditions in different countries are not the same," Mr Darling said.

While George Bush's stimulus package was appropriate in the US, "other countries are not in the same position".

Some economists believe that the Bush stimulus package will provide only a temporary fillip to the US economy, with consumer spending falling again in 2009.