The Obama administration's proposed $825-850 billion fiscal stimulus package will contain a great deal of tax cuts, and the reason is timing.

That's timing as in 'impact on GDP' and 'political timing,' so says economist Richard Felson.

Tax cuts galore

The stimulus package will contain at least $275 billion and probably closer to $300-325 billion in cut tax cuts and tax-related investment incentives because they're "the short-term, immediate-impact fuel in the stimulus engine," Felson said. "The cuts will also attract some Republicans to the plan, which is consistent with President Obama's governance philosophy."

"Tax cuts will have an immediate impact and will show up in GDP rather quickly, within 3-4 months, which will provide some demand in the economy," Felson said. On Thursday, the House Ways and Means Committee approved, via a 24-13 party-line vote, a stimulus plan that included $275 billion in tax cuts, The New York Times reported Friday. Felson said he expects selected House Republicans to vote for the bill on the House floor, and at least 4 or 5 Senate Republicans to do so, as well.

After a House floor vote, the bill will move to the Senate, where Senate Republicans may seek more tax cuts. Bill differences, if they occur, would need to be reconciled by a conference committee.

All House Speaker Nancy Pelosi, D-California, wants for Christmas -- happiness for her grandchildren aside -- is a tax cut.

The incoming Obama Administration, driven by the U.S.'s large economic problems and by prudence, is expected to seek quick approval of a major fiscal stimulus package soon after Inauguration Day on January 20. Even so, Speaker Pelosi may do the administration one better: Pelosi will seek to include a tax cut in a fiscal stimulus package, Pelosi's spokesman told Bloomberg News.

In addition, Congressional Democrats are considering passing two fiscal stimulus packages: one during the current lame-duck session and another after the Obama Administration and new Congress take office in January.

Pelosi favors a tax cut over the earlier stimulus version of tax rebates because the latter would take too long to administer, taxs-news.com reported. Pelosi will seek Senate agreement on a modified-version of a roughly $61 billion stimulus measure the House approved earlier in September, before seeking approval from President Bush.

With unemployment rising and the signs of slowdown all around, is a second tax rebate or second stimulus check from Congress up ahead?

The U.S. economy continues to slow. More than 800,000 jobs have been lost since the slowdown began about a year ago, and many economists say the lay-offs are likely to continue or even increase.

Meanwhile, the world's major industrialized nations are striving to stabilize the global financial system and end a credit crunch that could further damage economies around the world.

Well, the answer to the question about a second stimulus check may very well rest on the answer to this one: Who are you voting for on Election Day, November 4?

Key factor: 2008 Election

Congressional Democrats, led by House Speaker Nancy Pelosi, D-California, have vowed to push for a second stimulus package totaling up to $150 billion to help jump-start the anemic U.S. economy, The San Francisco Chronicle reports.

"A billion here, a billion there, and pretty soon you're talking about real money."

To paraphrase the late Senator Everett Dirksen (R-Illinois), if a couple billion is real money, what's $400 billion amount to? Fiscal trouble for the United States, says an economist.

The U.S. federal budget deficit will double this year, to $407 billion, from $161 billion last year, the Congressional Budget Office announced Tuesday, in its revised baseline projection report (pdf).

The CBO said a weakening economy, spending for the Iraq and Afghanistan Wars and the War on Terror, higher entitlement spending, and a slowing growth rate in federal receipts are among the factors that will push the deficit to 3% of GDP this fiscal year, which ends September 30.

The deficit will rise to $438 billion next year, fiscal 2009, remain roughly at that level, $431 billion, in fiscal 2010, before tapering to $325 billion in fiscal 2011.

The CBO also expects U.S. GDP to grow just 1.5% in 2008 and slow to 1.1% in 2009.

Economist Glen Langan said the multiple $400 billion deficits are bad enough, but they could rise considerably, if the U.S. Treasury's bailout of Fannie Mae and Freddie Mac does not go well. "If the housing market does not stabilize in the year ahead, Treasury could end up spending tens of billions more per year," Langan said. "Nearly all of that cost would be born by the taxpayer, which means the deficit will increase."

Bloomberg columnist Caroline Baum gently reminds us that not every tax cut achieves its intended effect.

Case study: The 2001 Bush Administration federal income tax cut, which included a cut in the marginal tax rate to 35% from 39.6%. The Bush Administration touted it as a tax cut that would increase incentives to invest, save and work.

The result? The tax cut didn't work: saving and investment have been "anemic" during the Bush years, Baum said, citing data provided by Paul Kasriel, chief economist at Northern Trust Corp. in Chicago. Business investment is down, the savings rate is at a post-World War II low. Further, the labor participation rate has declined.

No guarantee tax cut would be invested in U.S.

But why didn't cutting the top marginal rate do all of the good things the Bush Administration touted? Economist Peter Dawson said the reason is the tax cut's inherent flaw.

"The tax cut contained the mistaken belief that rich taxpayers would invest their money and invest in the right way, in the U.S., to increase GDP," Dawson said. "There was no guarantee that they would do that. Someone who is rich could invest the money in Brazil or India, with little benefit for the United States."

U.S. Treasury Secretary Henry Paulson's prediction that the 2008 tax rebate will create 500,000 jobs may come up a tad short, if a Bloomberg News survey is telling.

The median estimate of economists surveyed by Bloomberg News forecasts a stimulus package-induced job increase on 158,500 -- far short of Paulson's forecast, Bloomberg News reported Friday.

Paulson and other Bush Administration officials are hopeful the stimulus package will create jobs both directly and via spin-off effect -- for example, jobs created in manufacturing when goods are purchased; and jobs created in feeder industries to the manufacturing sector, etc.

The administration views the tax cut as intrinsic to jump-starting a U.S. economy slowed to a crawl (or perhaps already in negative growth) by its worst housing recession in more than 15 years, and by record-high oil and gasoline prices. (Oil traded Friday up $2.21 to $133.02 per barrel. Oil is up about 100% in 12 months.)

Economic Analysis: Analysts and economists vary regarding the tax rebate's job creation potential, and the 158.5K Bloomberg survey estimate is most likely on the mark. It's possible the tax rebate could create 500,000 new jobs, but the U.S. economy would have to experience an extraordinary boost in GDP growth in 2H 2008. The more likely scenario: only modest GDP growth in 2H 2008, which will make the Bush Administration the first administration to preside over a net drop in payrolls since the Eisenhower Administration in 1960, according to the Economic Policy Institute.

The major public policy players in Washington appear to be lining up in support of a fiscal stimulus package to help jump-start the ailing U.S. economy.

Professor Emeritus David E. RePass of the University of Connecticut once said that, "Congress doesn't react, unless not reacting will result in the Congress bearing the wrath of the American voter."

In this instance, it looks like the Congress has heard about, or has at least taken the pulse of economic conditions in their home districts, and is set to act on a stimulus package. And, by all accounts, it looks like they may do it in near-record time. (The late writer Mark Twain would add here, "Famous last words.")

Fiscal stimulus: full speed ahead

House Speaker Nancy Pelosi, D-California, said she expects to introduce an economic stimulus package after she meets with President Bush next Tuesday, CBS News reported. Further, on Friday, President Bush outlined a proposed $140 billion stimulus plan, which will include tax cuts and other tax credits, The Wall Street Journal reported. In his statement Friday, Bush did not provide specifics, but lawmakers close to the White House said the administration is set to propose tax rebates of $800 and $1,600, for individuals and households, respectively, and is set to provide businesses with a 50% tax deduction for new equipment purchases, The Journal reported.

U.S. Federal Reserve Chairman Ben Bernanke's signal, in a speech Thursday, that more interest rate cuts are on the way, should not cause Congressional officials to be less lax regarding fiscal policy stimulus, economists and analysts told BloggingStocks Thursday.

"In light of recent changes in the outlook for and the risks to growth, additional policy easing may be necessary," Bernanke said in a speech before a business group in Washington. Bernanke added that, "We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks."

A housing sector that remains in correction mode, to put it diplomatically; a contracting manufacturing sector; declining auto sales; a pull-back in consumer spending; anemic job growth -- historically, these would signal a no-doubt-about-it easing monetary policy by the U.S. Federal Reserve to stimulate the economy.

But hold on, the nation's economic landscape is not that simple, as Fed Chairman Ben Bernanke would no doubt tell you.

Inflation, at both the consumer and producer levels, is rearing its ugly head. Fanned higher by the near-record price of crude oil, inflation is already above the Federal Reserve's target zone (also called the Fed's "comfort zone"), and is likely to move higher later this year if +$80 per barrel oil persists. (Oil fell $1.90 to $97.28 Friday afternoon on fears of a U.S. recession.)