Stimulus bill hits Senate this week
A bipartisan accord in the House calls for a $150 billion spending plan, including significant tax rebates. But senators may want add-ons.
Washington and New York — In a rare display of bipartisanship, Congress is on a fast track to approve a $150 billion spending package to boost a sluggish US economy.
It is the first of what are likely to be several stimulus plans put forward on Capitol Hill in coming months and the one most likely to become law.
With an election ahead in November, Republicans and Democrats are both under pressure to pass popular measures that reduce the risk or severity of a recession. That's why each side has made compromises, dropping controversial measures from the legislation to get a bill to President Bush by mid-February.
"We're doing our very best to maintain the bipartisan atmosphere that we have in the House," said Senate majority leader Harry Reid in a briefing last Thursday.
Even before the House votes on the deal, however, Senate committees are preparing this week to consider adding other elements, such as extending unemployment insurance, increasing food stamp programs and Medicaid payments to states, and reviving a $21.8 billion package of renewable-energy tax credits, which could boost employment in alternative-energy industries.
Support for adding elements to the bill is bipartisan, Senator Reid said. "We've had [Senate] Democrats and Republicans ask for certain things.... We have Republicans who are also concerned about extending unemployment benefits," he said.
Proposals that don't make this version of a stimulus plan could be taken up in a longer-term stimulus plan, he added. "That will come at a later time, but hopefully not too much later."
Tax rebates to help jolt the economy
The spending package hammered out last week by House leaders and Mr. Bush will add some pop to the sluggish US economy by the spring and may be enough to avert or end a recession.
The plan is relatively simple for individuals: a tax rebate – or "recovery rebate," as House Speaker Nancy Pelosi calls it – targeted at those who are likely to spend the money rather than save it. It will hit the economy at about the right time, say many economists of the bipartisan deal announced Thursday.
The tentative deal calls for giving $300 to $600 to an individual filer and up to $1,200 per family, plus $300 for each child. The rebates would be gradually phased out for individuals whose adjusted gross income exceeded $75,000 (or $150,000 for families). Small businesses would get a tax incentive to spend as well.
"It is no doubt positive for the economy," said Richard DeKaser, the Washington-based chief economist for National City Corp. in Cleveland. "It's a serious stimulus package, and I have little doubt its effect will be meaningful." The fiscal stimulus comes even as the Federal Reserve is aggressively dropping interest rates. The nation's central banker lowered rates by 0.75 percent on Jan. 22 and is expected to drop rates again on Wednesday.
"By itself, the fiscal spending package is probably not enough to keep the economy from going into a downturn," said Mr. DeKaser. "But combined with the Federal Reserve's rate-cutting, it should be enough to keep the economy from dipping into a recession."
Other economists are not so sanguine, but they say the fiscal stimulus will help give the economy a jolt in the second quarter, which starts in April. The package could mitigate the effects of the downturn or jolt the economy out of it, says economist Mark Zandi of Moody's Economy.com.
Congress and the Fed may yet have some leeway because the economic indicators are not yet tilting toward recession. For example, new claims for unemployment remained steady at 300,000 for the week ending Jan. 19, the Department of Labor reported Thursday. This indicates that so far there are no widespread layoffs, says economist Bob Brusca of Fact and Opinion Economics.
In December, concerns heightened that the economy had already slipped into recession because new jobs grew at a low rate and unemployment jumped to 5 percent. "So far it looks like January is reversing some of the dim economic statistics from December," said DeKaser.
However, existing sales of homes dropped 2.2 percent in December and were down 12.8 percent for all of 2007. Median home prices dropped 1.8 percent for the year, the first nominal decline in any year since the Great Depression.
The tax-rebate package includes a one-year temporary increase in the loans that can be purchased by Fannie Mae and Freddie Mac. Both of them could buy loans up to $625,000, up from $477,000 currently. This should help spur mortgage lending in states such as California and Florida, where high real estate prices have held back lending.
A sense of urgency aids deal
The deal worked out by bipartisan House leaders and Treasury Secretary Henry Paulson represents significant compromises across the board for a Congress typically in gridlock.
Republicans agreed to recalibrate the program to include more lower-income families, while Democrats gave up cherished spending programs.
Democrats also urged and won relief for families caught up in the subprime mortgage debacle and expanded the plan to include wage-earning households that do not file income taxes.
Republicans claimed credit for including tax relief for employers, including a 50 percent bonus deduction on new equipment, and for holding the line on extraneous spending and tax hikes.
"I can't say I'm totally pleased with the package," said Speaker Pelosi in a briefing announcing the deal on Thursday. "Let us praise this for what it does and not disrespect it for what it does not: It is timely, targeted, and temporary, and it was done in record time since our conversation with the president [on Tuesday]."
While Senate leaders say they will give the House plan thorough consideration, even strong objections to the proposed plan are taking a back seat to the sense of urgency on Capitol Hill to be seen doing something on a front-burner issue.
"I'm not enthusiastic about rebates for people who don't pay income taxes, but if that's what it takes to get a bipartisan compromise, I'll probably support it," said Sen. Chuck Grassley (R) of Iowa, the ranking Republican on the Senate Finance Committee. "I'm not taking anything off the table."
The Senate Finance Committee begins marking up its own version of a stimulus plan this week. The panel, typically one of the most bipartisan in the Senate, will consider extending unemployment insurance, increasing funding for food stamps, heating assistance for the poor, rebate checks for low-income retirees, and more tax breaks for business.
But he added that he would work with Treasury Secretary Paulson, House leaders, and the White House "to agree on any new provisions."
Quick implementation is key
Meanwhile, interest groups all over Washington are ramping up to influence the endgame deliberations on the plan. A main selling point is how fast competing stimulus plans could get cash into the economy.
Secretary Paulson said that if all works well, the Internal Revenue Service could begin moving rebate checks to some 117 million people in May.
"The Social Security Administration could get seniors a stimulus check in six weeks – a faster implementation than the IRS would be able to deliver," said Barbara Kennelly, president and CEO of the National Committee to Preserve Social Security and Medicare, a nonprofit advocacy group for seniors.
Unions say extended unemployment insurance could have an impact on the economy and consumer spending even sooner. "It's extremely likely that there will be provisions [in the Senate bill] extending unemployment insurance either in this stimulus plan or in one to follow quickly," says Bill Samuel, director of government affairs for the AFL-CIO. "We don't think that the Senate will allow 200,000 jobless workers a month to run out of benefits – and that number is going to increase."
A similar tax-rebate plan in 2002 took about 10 weeks to finish distributing $38 billion in stimulus payments. If it takes that long again, much of recipients' spending will take place in the summer.
"If it's targeted to the right people, it could be enough to reduce the risk of recession, particularly in the light of Fed action," says Mr. Matus.
[Editor's note: An earlier version of this story was posted Thursday, January 24.]