The White House is preparing to grant tax rebates for individuals and businesses in an attempt to boost the American economy as Goldman Sachs yesterday became the latest bank to give warning that recession is going to hit the United States this year.

The plan, which would need to be ratified by the Senate and the House of Representatives, would mark the first significant step by President Bush to prop up the broader economy since America’s mortgage market began to melt down early last year.

Although the proposals are at an early stage, the White House is expected to return up to $100 billion (£51 billion) to individuals and companies. One option would mean that people in certain tax bands would receive cheques of about $500 in the hope that they would spend it and stimulate the economy. Companies could be able to deduct from taxes a substantial portion of investments in equipment over a given period.

However, analysts believe that any tax rebate that could be afforded would have a negligible impact on the economy and have suggested that the move could be designed merely to appeal to voters in an election year.

Lou Crandall, chief economist at Wrightson ICAP, a research firm, said: “A one-off tax rebate of, say, $75 billion would have a negligible impact, since it represents just a shade over 0.5 per cent of GDP. A permanent tax cut of that amount would be much more effective. For a one-off payment, the rebate would need to be far higher than the Government could possibly contemplate.”

Mr Crandall added that an earlier tax rebate, of about $40 billion, implemented by the Bush Administration during the 2001 recession, “made no difference”. The White House did not comment specifically on potential tax rebates, but this week Mr Bush said that his Administration would “look at all different options”. “We’re watching very carefully and we’re listening to different ideas about what may or may not need to happen,” Mr Bush said.

The planned rebates emerged as Goldman Sachs became the latest investment bank to forecast a recession in the US this year. In a note to clients, it predicted that gross domestic product would fall by 1 per cent, on an annualised basis, in both the second and third quarters of 2008. A recession occurs when an economy records two consecutive quarters of declining GDP.

The bank said that the US Federal Reserve was likely to cut its benchmark lending rate from 4.25 per cent to 2.5 per cent by the third quarter in an attempt to stimulate the economy and forecast that GDP would rise by 0.8 per cent for the year as a whole.

In yet another piece of bad news for America’s housing industry, Countrywide Financial, the country’s biggest mortgage lender, yesterday reported that foreclosures and late payments had hit their highest in more than five years last month. Foreclosures doubled to 1.44 per cent of outstanding loans, from 0.7 per cent a year earlier, while late payments increased from 4.6 per cent to 7.2 per cent.

Times Recommends

• Darling under pressure on record public debt
• Mortgage lending falls 32% as drought deepens
• Oil prices firm after 10% drop to below $130