On Friday, two influential business groups advised the White House to move quickly to push a stimulus package through Congress, suggesting that the economy might be deteriorating faster than the administration recognized. But administration officials said they remained as concerned about doing too much for the economy as they were about not doing enough.
"We don't want to overstimulate and just have an inflation problem long term," said Kenneth W. Dam, the deputy Treasury secretary, referring to the possibility that an overheated economy could set off a surge in prices.
But with inflation a distant threat and layoffs, lost profits and tumbling stock prices defining the economic landscape in the here and now, political pressure is building to take action.
Treasury Secretary Paul H. O'Neill told Congress on Thursday that the administration is "looking at every instrument that's ever been used before, and some that haven't" to give the economy a boost if necessary.
O'Neill and Dam have both hinted in the last few days that the administration's preference, should it go ahead with a package, is to focus on permanent tax cuts for business, perhaps a reduction in corporate income taxes.
Capital gains
On Capitol Hill, many Republicans are pressing for a reduction in capital gains taxes, a step they say would help the stock market and provide capital to businesses by making investing more attractive.
Most Democrats, by contrast, are seeking temporary tax cuts for all workers, saying that the best tonic for the economy would be to put cash into the hands of people who would go out and spend it.
Should they decide to go ahead with a permanent package of tax cuts, administration officials said, they believe there is plenty of money available from projected surpluses.
Democrats not only want to make any stimulative tax cut temporary, they would also like to roll back parts of the tax bill Bush signed into law this year, like the repeal of the federal estate tax, that do not take effect until the end of the decade.
The case for a permanent reduction in corporate taxes, Dam said, is that it would "change corporate investment decisions overnight" by freeing up more cash and promising a higher rate of return on new plants and equipment.
The case against it
The case against it, he said, is "fundamentally political" because it would be portrayed as a break for powerful special interests, a characterization that he said was unfair.
But some economists say there is also an economic case against cutting corporate taxes. Companies are not suffering from a lack of investment capital, economists said. Their problem is that they have more production capacity than they can use and are not going to expand their operations until demand from their consumers increases.
Having failed to attach a reduction in the capital gains tax to Bush's tax cut package this year, Republican proponents of the proposal sought to make it the centerpiece of any stimulus package in the days after the attack on the World Trade Center and the Pentagon, drawing accusations of political opportunism from Democrats.
"Any stimulus ought to put money in people's pockets to give a lift to the economy now," said Senator Kent Conrad, the chairman of the Senate Budget Committee. "It has to be coupled with long-term fiscal discipline to take the pressure off long-term rates."?
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