Credit should always be given where it is due, and, accordingly, U.S. Congressional leaders – House Speaker Nancy Pelosi, Republican Leader John A. Boehner, along with Treasury Secretary Henry Paulson must be commended for responding in record time in reaching a deal on tax rebates that is favorable with President Bush.

It was only on Monday that President Bush proposed a $145 billion stimulus package including tax rebates of $800 - $1,600, but which would have left some 30 million working households, not earning enough to pay income tax without a cent. The Congressional leaders reacted quickly to Bush’s proposal and early Thursday morning announced a $150 billion stimulus package that would provide rebates of $600 to individuals, $1,200 to working couples; $1,200, and an additional $300 per child to couples with children.

A significant change to the president’s plan is that workers who earn at least $3,000 annually, but not enough to pay taxes, will receive a $300 rebate. In addition to the tax rebates to individuals and families, estimated to cost $100 billion, business would receive $50 billion in tax cuts.

The theory behind both the president’s and Congressional leaders’ proposals is that the cash rebates will generate quick spending which would jump start the economy. However, the initiative will not be enough to stimulate America’s economic recovery and prevent the encroaching recession.

Certainly, the new initiative which needs the approval of the full Congress and the Senate provides a measure to alleviate some of the pressure on the national economy. It will benefit retailers since a large percentage of consumers will have more cash to spend on consumer items. Given that consumer spending fuels 70 percent of the nation's economy, the thinking is that the fastest way to remobilize the economy is through putting cash in the hands of the consumer.

However, like a Band-Aid strip, this measure will only be a temporary fix. It is similar to the situation that prevails at the annual holiday shopping season when consumers spend without restraint, benefiting retailers and their suppliers, and creating a slight surge in employment. Once the holiday season passes and spending constricts, the revenue of retailers (and their suppliers) falls, the temporary rise in employment ends, and retailers again face sluggish sales. Similarly, when the tax rebate is spent, the temporary boosts to the economy will end, with the economic problems unsolved.

Any extra money that consumers are given during normal times would have helped to spur spending, but the current national economy does not suggest normal times, and any temporary tax relief may not be as effective as a permanent tax relief.

The economy has been ravaged by the decline in the housing market, unprecedented foreclosures, tightening of credit, rising prices of gas, other oil based products and some food items, and a slow down in employment. The announced plan stands very little chance of overcoming these foreboding obstacles. Some economic analysts will argue that tax rebates worked in 2001, when to stave of a sluggish economy Bush refunded taxpayers between $300 and $600. However, the economic problems that exist now were not around then. Moreover, although the refunds did boost sales nationally by some 3.2 percent, with holiday sales that year rising by a strong 3.6 percent, sales slipped to a 3 percent growth in 2002. Holiday sales that year rose by an anemic 1.3 percent.

The nature of the nation’s economic woes calls for a combination of tax rebates, permanent tax cuts, interest rates cuts and freezes, special employment projects to put long-term cash in people’s pockets, and increase in public assistance to both the poor and social security beneficiaries. What is needed is sustained spending to stimulate the economy. But, on the other hand this is going to cost the government, and without increase in tax revenues the question must be asked of where the money will be found. Some will answer: “Stop spending billions of dollars on the war in Iraq, and utilize those funds to use to resuscitate the economy”. Others may argue to drastically reduce income taxes and increase sales taxes across the board, except for crucial food and other items purchased by low-income families.

The truth is that there are no simple answers, because America’s current economy has no easy medium or long term solutions. The unrealistic, misguided sub-prime mortgage fest has created such an economic mess that has economists redefining and rethinking traditional economic variables, seeking elusive answers.

The plan is to be pushed rapidly through Congress and it is hoped that the Senate will act with the same speed on defining an economic stimulus plan, as will Congress. However, the Senate should produce not just a temporary fix, but a more permanent plan that includes tax cuts for the middle class, tax relief and incentives for small businesses, assistance to homeowners facing foreclosures, and spending incentives for the unemployed and unemployable. Temporary plans may seem fine, but it will be sound, long-term plans that will buffer both a national and international recession.