January 18, 2008 11:43 a.m.

WASHINGTON -- President Bush on Friday called for about $145 billion worth of tax relief to stimulate a sagging economy and fend off a possible recession.

Mr. Bush said that to be effective, an economic stimulus package would need to roughly represent 1% of the gross domestic product -- the value of all U.S. goods and services and the best measure of the country's economic standing. White House advisers say that, in current terms, 1% would amount to around $145 billion, which is along the lines of what private economists say should be sufficient to help give the economy a short-term boost.

"Letting Americans keep more of their money should increase consumer spending," he said.

Mr. Bush said that Congress should work as soon as possible to send him legislation to "keep our economy growing and creating jobs."

The president and Congress are scrambling to take action as fears mount that a severe housing slump and painful credit crisis could cause people to close their wallets and businesses to put a lid on hiring, throwing the nation into its first recession since 2001.

Congressional leaders, including House Speaker Nancy Pelosi, a California Democrat, have discussed wrapping up details of their stimulus plan the week of the State of the Union address, which falls on Jan. 28, though procedural hurdles in the Senate could delay final action for weeks.

Additional items on the Democrats' wish list: lengthening unemployment benefits and expanding food stamps and the Earned Income Tax Credit, which helps low-income taxpayers.

Fears of a recession continued driving down stocks yesterday. The Dow Jones Industrial Average plunged 306.95 points, or 2.5%, to close at 12159.21. All 30 Dow components again ended lower, and prices for 10-year and 30-year Treasury bonds soared as investors sought safe havens.

The selloff was triggered in part by the latest mammoth loss on Wall Street, this time from Merrill Lynch & Co. Merrill announced a fourth-quarter net loss of $9.8 billion as it recorded $16.7 billion in losses related to subprime mortgages and other fallout from the credit-market turmoil. Federal Reserve Chairman Ben Bernanke's warning about a slowing economy contributed as well, as did reports of a sharp decline in manufacturing activity and downgrades of key bond insurers.

The political momentum behind a stimulus package has been fueled in part by worried lawmakers, who got an earful about the economy from their constituents over the holiday break. That's helped to create an unusually bipartisan climate in Washington, which was plagued by inaction and political bickering for most of last year.

Neither Democrats nor Republicans want to be seen standing in the way of compromise on economy-boosting measures for fear of incurring the wrath of voters worried by falling home prices, rising unemployment and high prices for gasoline, heating oil and health care.

"Whether or not it's technically a recession, it certainly feels like one," said Republican Rep. Phil English, at a recent hearing on the economy. His Erie, Pa., district is among several dozen metropolitan areas that already appear to be in recession, according to an analysis by Mark Zandi, chief economist at Moody's Economy.com.

The magnitude of voters' frustration with the deteriorating economy and congressional inaction is forcing both parties to set aside the instinct for political infighting that's common in election years. "The future is bleak," said Rep. William Lacy Clay, a Missouri Democrat, who added that people have approached him at the grocery store and during tours of local businesses to plead for action. "My hope for us is that we quickly respond."

Mr. Bernanke added to the momentum yesterday by agreeing with the notion that the economy could use a jolt of fiscal adrenalin. In testimony before the House Budget Committee, he said fiscal stimulus "could be helpful in principle" and could reinforce the impact of interest-rate cutting by the Fed. But he cautioned that "design and implementation" are "critically important." He said he isn't -- at least for now -- forecasting a recession, but he does see the economy "growing at a relatively slow pace" this year.

Asked about the optimal size of a stimulus package, Mr. Bernanke said, "If you did $100 billion of stimulus...effects on the growth rate...would be significant. It would not be window dressing." Noting that stimulus packages ranging from $50 billion to $150 billion have been mentioned, the Fed chief termed those "reasonable...from a macroeconomic viewpoint."

There remains a chance that a stimulus package could get bogged down by political bickering. Congressional aides say some Democrats came away from a conference call yesterday between the White House, Treasury Secretary Henry Paulson and top lawmakers annoyed that Mr. Bush was planning to unveil details of his proposals before meeting congressional leaders to hammer out a compromise. They also urged Mr. Bush to stay actively involved with the negotiations after he suggested it would be up to Capitol Hill to reach a deal, said one person familiar with the call.

After the call, Mr. Bush contacted House Minority Leader John Boehner, according to a Republican aide. They talked over the matter, and Mr. Bush decided to limit his remarks today to the general outlines of his plan.

According to White House spokeswoman Dana Perino, Mr. Bush listened to lawmakers' ideas and shared his thoughts with them. "He told them that he will call for an effective, temporary growth measure, and he will lay out principles tomorrow for what an effective approach would be, and what would not be effective," Ms. Perino said. She said it was too early to say what would be in the president's package, which is being devised by Mr. Paulson.