Yesterday, the U.S. House of Representatives overwhelmingly approved a $146 billion economic stimulus package worked out by House and administration negotiators. At the heart of the package is a tax rebate that would provide checks of up to $600 for individuals and $1,200 for families. The rebate would be available to taxpayers earning over $3,000 in wages and would be phased out for individuals earning over $75,000 and families earning over $150,000. The price tag for the tax rebate would be just under $100 billion.

But the Senate has different ideas. The Senate Finance Committee will meet today to debate and vote on a plan that provides a somewhat smaller tax rebate – $500 and $1,000 to individuals and families, respectively, who earn at least $3,000 but treats Social Security retirement benefits as taxable wages, meaning that no- or low-income seniors would also qualify. The Senate tax rebate plan removes the cap found in the House-administration plan and costs roughly $120 billion.

There are many other differences between the two proposals, but the key differences in terms of equity and efficacy of the stimulus package relate to the plans' divergent provisions regarding the $3,000 wage floor and the $75,000/$150,000 ceiling. A compromise between these plans, one that would eliminate the floor and restore the ceiling, would provide more cash to those who need the rebate most, provide greater stimulus to the economy, and would save money in the process.

As President George W. Bush said in his State of the Union speech on Monday, "At kitchen tables across our country, there is a concern about our economic future … we can all see that that growth is slowing." Whether we are headed for an economic recession or a severe slowdown, consumer confidence in the U.S. has collapsed in the last six months, as the Conference Board reported today.

Consumer purchases contribute enormously to the economy. According to government figures, they are responsible for about two-thirds of total gross domestic product (GDP)

Experience shows that a stimulus plan works, if it works at all, to the extent that it quickly gets cash into the hands of those who are most likely to spend it immediately. There are many ways to do this. A study by Mark Zandi of Moody's Economy.com shows that while certain spending increases (increasing unemployment benefits or food stamp assistance, for example) are the most effective stimulus tools, a lump-sum tax rebate is reasonably effective; tax cuts for individuals and tax breaks for business are the least effective.

But not all lump-sum tax rebates are equal. On Jan. 17, Federal Reserve Bank Chair Ben Bernanke told Congress:

If you're somebody who has lots of financial assets and you receive an extra dollar, you may not change your spending much because you can simply either put the dollar in your bank account or take out a dollar as you need it …. If you're somebody who lives paycheck to paycheck, you're more likely to spend that extra dollar.

So there is more "bang for the buck" for stimulus purposes from cash infusions going to low- and moderate-income individuals than from wealthy ones. The bigger the rebate and the higher up the income scale its recipients, the weaker the stimulative effect on the economy. For better or worse, rebates saved or invested do practically nothing to stimulate consumer spending in the short-run.

This is where the proposal to eliminate the floor and restore the ceiling in the stimulus package tax rebates comes in. This proposal would improve the House and Senate versions in three ways:

* Efficiency: it would move more cash quickly into the hands of those who would spend it quickly: the $3,000 floor serves only to limit consumer spending in an arbitrary way; similarly, providing rebates to the well-off does little to stimulate spending
* Equity: it would make the package more equitable, providing additional resources to those in greatest need while reducing benefits to those of abundant means
* Responsibility: such a stimulus package – with a ceiling but without a floor – would add less to the deficit than the reverse, a package without a ceiling but with a floor. How? Because the cost of eliminating the $3,000 floor – about $5.5 billion – is roughly $1 billion less than the cost a rebate for individuals earning over $75,000 and families earning over $150,000 – about $6.5 billion.

The proposal has strong support in key quarters. Today, deficit hawk Sen. Byron Dorgan (D-ND) called the idea of removing the ceiling “absurd … That’s as if common sense has left the building.” And Senate Majority Leader Harry Reid (D-NV) has already promised to add income caps to the bill if it reaches the Senate floor without them. “[It] causes me to want to gag … I don’t think Warren Buffett should have a rebate,” Reid said. No one defends the notion of depriving those earning under $3,000 of a rebate.

Most importantly, making these changes would be easy. They are simple to understand and to implement. "Time is of the essence," Treasury Secretary Henry Paulson told the U.S. Chamber of Commerce last week. The Senate can and should act quickly to make these changes, Congress should enact them, and the president should sign them without delay so the stimulus package can have optimal effect: efficient, equitable, responsible, and timely.