ANALYSIS-Bush, Congress face pressure to act on economy

WASHINGTON (Reuters) - President 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 or other legislation 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.

Hassett said that tax rebates, extensions of unemployment insurance and possibly also tax breaks for business equipment investment are logical ideas for both sides to consider since those measures have been included in stimulus packages during past U.S. recessions.

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 Jan. 28.

Meanwhile, the economy is a top issue for lawmakers returning to Washington from their monthlong break. House of Representatives Speaker Nancy Pelosi, a California Democrat, was to meet Monday with Federal Reserve Chairman Ben Bernanke. She is expected to meet on Tuesday with Democratic leaders about economic stimulus ideas.

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's aides had already begun consultations on Capitol Hill, and that Bush intends to brief leaders of both parties when he returns from his trip, and would likely also discuss the economy with them.

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 of the candidates vying to succeed Bush in the Nov. 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, said in an interview with Reuters 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, Editing by Jackie Frank)