Bush, Congress face pressure on economy

WASHINGTON (Reuters) - U.S. President George W. Bush and the Democratic-led Congress, who battled last year over issues from Iraq to health care, face rising pressure to try to seek common ground on a plan to help the struggling economy.

Many private economists fear a recession is looming for the United States, which has been hit by a housing crisis, a credit crunch and oil prices hovering near $100 a barrel.

Any effort to counter a recession with measures such as temporary tax breaks for households could run into difficulties in the partisan atmosphere typical of a presidential election year.

But some analysts said the concerns about the economy are serious enough that Bush, a Republican, and the Democrats might feel compelled to set aside their political differences.

"It's very common when you are at or near a recession that the two sides will see if they can work together to help the economy," said Kevin Hassett, an economist at the conservative American Enterprise Institute. "It's the normal playbook."

One congressional Republican said the White House has floated the idea of tax rebates, though no firm decisions have been made. Tax rebates are also popular with Democrats but the two sides may differ on whether they should be focused on a specific income group such as the middle class or also aimed at poorer households who pay very little income tax.

Some private economists say a stimulus in the range of $50 billion to $100 billion would be needed to give the economy a meaningful boost.

ECONOMY TOP ISSUE

Bush, who is traveling in the Middle East, has said he will be listening to recommendations from his aides about a possible economic package that he might unveil in his State of the Union address to Congress on January 28.

Meanwhile, the economy is a top issue for lawmakers returning to Washington from their monthlong break.

House of Representatives Speaker Nancy Pelosi, who met behind closed doors on Monday with Federal Reserve Chairman Ben Bernanke, said she hoped for a fiscal plan for the economy that could work in tandem with any actions by the Fed to reduce interest rates.

The economic plan should be "timely, targeted and temporary," said Pelosi, a California Democrat.

Similarly, Treasury Secretary Henry Paulson has said any stimulus program should be temporary and designed to kick in quickly. Bush has long pushed to make his 2001 and 2003 tax cuts permanent though Paulson has acknowledged the Democratic-led Congress was not likely to do that.

At the top of the wish list for some Republicans is a cut in corporate tax rates. Among Democrats, there is interest by some in spending proposals on public infrastructure such as roads and bridges but also tax breaks for the middle class and extensions of unemployment insurance.

Pelosi and Senate Democratic Leader Harry Reid on Friday wrote to Bush asking to meet with him as soon as possible to discuss the economy.

White House spokesman Tony Fratto said Bush intends to meet with leaders of both parties about his Middle East trip and the subject of the economy is expected to come up too.

Fratto said that while Bush has not made up his mind about whether to offer a stimulus package, if he were to do so, "I think there would be enough interest on both sides" to try to pass something quickly.

Ratcheting up the pressure on officials to act soon, several candidates vying to succeed Bush in the November 4 election have already outlined stimulus plans, including Democrats Hillary Clinton, Barack Obama and John Edwards and Republican Rudy Giuliani.

While warning lawmakers not to "micromanage" the economy, a conservative lawmaker, Rep. Paul Ryan of Wisconsin, said in an interview with Reuters on Friday that he believed the economy was already in a downturn.

"It's incumbent upon us to see if there are things we can do to dampen the downturn," said Ryan, the senior Republican on the House Budget Committee and a member of the tax-writing Ways and Means panel.

(Additional reporting by Donna Smith, Thomas Ferraro and Kevin Drawbaugh, Editing by Jackie Frank)