White House bets consumers will spend tax cuts

The Bush administration is optimistic US consumers will spend, rather than save, the bulk of any tax cuts they receive under an economic stimulus package the White House wants to craft with Congress, US Commerce Secretary Carlos Gutierrez said on Friday.
"We're not going to tell consumers what to do or how to spend their money, but we believe from our experience that the bulk of it will be used for consumer expenditures," Gutierrez told Reuters in an interview.
With the United States facing an economic downturn, some experts believe consumers could be tempted to save any tax cuts they receive or use the money to help pay off debt. That would frustrate the intended purpose of trying to boost the economy through more consumer spending.
"We saw from the experience in 2001 and 2003 that when cash gets into consumer's hands, primarily it's used for expenditures. They do spend the money," Gutierrez said, referring to previous US government tax rebate schemes.
US President George W. Bush called on Congress on Friday to give the US economy a "shot in the arm" with a $140 billion to $150-billion package of temporary tax cuts and other measures.
Bush said the United States, where share markets have slumped and unemployment is rising, faced the risk of an economic downturn but his advisers still expected continued growth.
Net exports helped keep the US economy growing in 2007 in the face of a severe housing market downturn. However, higher oil imports prices have slowed that trend, Gutierrez said. The US economic slowdown follows the first year-to-year drop in the overall trade deficit since 2001, when the United States experienced a recession.
Many lawmakers complain the trade deficit, which reached a record $758.6 billion in 2006 before falling in 2007, is still too high and government action is needed to cut it further.
However, Gutierrez said it was more important for policymakers to focus on bigger measures of US economic health, like gross domestic product, employment and inflation. "Some people would like us to assume the trade deficit is the most important number. We could reduce the trade deficit very quickly, but it would cause serious damage to the economy," Gutierrez said. Rather than try to curb imports, the United States should focus on boosting exports to reduce the deficit, he said.