Dec. 17 (Bloomberg) -- With each sign that the economy is heading the wrong way, the drumbeat for an economic stimulus gets louder.

While it may be premature to pull the stimulus trigger, it isn't too early for Congress to start learning what the Bush administration got wrong last time around, and what are the right rules of the road going forward.

Here are four:

First, any stimulus runs the risk of becoming a ``get-out- of-fiscal-responsibility-free'' card.

With the economy sliding into a recession in 2001, President George W. Bush would have been on strong ground to call for a high-impact tax cut for working families that didn't include any offsets in the short-term.

Yet, the stimulus rationale was used to call for a permanent tax cut for the wealthiest Americans that is adding at least a $100 billion to the national debt each year for the foreseeable future. Many conservatives who initially winked at this lack of long-term fiscal responsibility when it concerned a tax cut, soon learned that the free-lunch mentality was to apply to spending as well, starting with the large new prescription- drug program for seniors.

So rule No. 1: A temporary decision to increase the deficit to stimulate the economy really should be temporary.

Next, when we increase the deficit to stimulate the economy, we should ensure that as close to 100 cents on the dollar is pumped into boosting demand. In 2002, the administration came forward with a slew of new proposals, from capital-gains tax cuts to accelerating tax cuts for the well- off. These received the lowest ratings possible for their stimulative kick from the Congressional Budget Office.

No New Incentive

Most notable was the Bush administration's first proposal after Sept. 11: a $22 billion plan to retroactively repeal the corporate alternative minimum tax, with about a third of it to be split among 16 companies. As the CBO stated in 2002, ``Its bang for the buck is small because it is primarily a reduction in taxes on the return from capital that is already in place, not an incentive for new investment.''

It didn't have to be that way. The Democratic alternative put forward by Nancy Pelosi, now House speaker, and former Senate Majority Leader Tom Daschle had a greater and more immediate impact with only minimal harm to the long-term deficit.

So rule No. 2: Get the most bang for the buck possible.

Timing Is Everything

A stimulus also should encourage spending during the period of economic weakness being targeted. The initial tax cut in 2001 was not designed to arrive during 2001, the recession year. Even after the administration was pushed to accelerate a small part of the expected tax cut into 2001, it was so poorly designed that Mark Zandi, chief economist of Economy.com, estimated that the tax cut had zero impact that year.

While I along with others pushed an investment tax incentive to move businesses off the fence by providing far higher relief in the first year, the Bush investment tax credit was the same level all three years. That meant no incentives to immediately accelerate investment.

Our current housing crises makes timing all the more imperative. Stimulus related to housing will be less effective if it comes only after foreclosures have surged.

Rule No. 3: Timing, timing, timing.

Finally, there is no tension between pro-growth and progressive policies when it comes to stimulative tax cuts for individuals.

The more hard-pressed you are, the more likely you will be to spend any extra money and add to consumption and demand immediately.

Fastest Spenders

Yet, even the small part of the Bush tax cut that was accelerated to 2001 wasn't refundable and was either completely or partially denied to 51 million households most likely to have immediately increased consumption.

Taxpayers earning more than $1 million averaged $90,222 in tax cuts in 2003. Meanwhile, almost half of all tax filers -- the ones most likely to quickly spend -- received $100 or less in tax relief.

And so a final rule: Get the tax cuts into the pockets of those who will spend it quickest.

Republican lawmakers and the administration are sure to respond that the economy did improve and that the tax cuts were the cause. This claim ignores, as Merrill Lynch & Co. chief North American economist David Rosenberg has documented, that the annual rate of job and wage growth has been the worst of the past six recoveries. That's far from an impressive validation.

If economic stimulus is what's needed now, here are a few ideas that might meet the four rules:

-- a bonus for families on the earned-income tax credit to boost consumption by the working poor.

-- a front-loaded investment tax credit for business.

-- a refundable payroll rebate out of general revenue for families of modest incomes.

-- energy relief for the elderly.

-- a one-time foreclosure-prevention fund.

-- relief to states to prevent property tax hikes.

-- broadening unemployment insurance relief.

This time let's leave the get-out-of-fiscal-responsibility- free card in the deck and devise a package that is temporary, well-timed and gets the most bang for the buck.

(Gene Sperling, author of ``The Pro-Growth Progressive,'' was President Bill Clinton's top economic adviser. He is a senior fellow at the Center for American Progress and is advising Hillary Clinton in her bid for the 2008 presidential nomination.)

To contact the writer of this column: Gene Sperling in Washington at gsperling@cfr.org

Last Updated: December 17, 2007 00:18 EST