Obstacles await Obama's stimulus effort in Congress

McClatchy NewspapersJanuary 23, 2009 

WASHINGTON — President Barack Obama's economic stimulus effort faces a series of obstacles — including serious questions about its tax provisions and how quickly it might spark the economy — as Congress prepares to vote on the package.

The House of Representatives is expected to debate and vote on its $825 billion version on Wednesday or Thursday, and since Democrats have a strong majority and tight control of the rules of debate, the measure should pass easily.

However, if it gets no Republican votes — a growing possibility — the plan could trigger the kind of ugly, divisive partisan fight that Obama has been trying mightily to avoid.

The plan still is widely expected to win final congressional passage by mid-February. As it crawls through the Senate, however, it will face significant hurdles.

The Senate Finance Committee will begin considering the tax portions of the bill Tuesday, and Senate Democrats are concerned whether the House package pumps money into the economy quickly enough.

"We may have to rethink this," said Senate Budget Committee Chairman Kent Conrad, D-N.D., of the House spending proposals "We have got to focus like a laser beam on making this package timely."

Lawmakers are troubled by last week's Congressional Budget Office report, which concluded that only 7 percent of money from key spending programs in the stimulus package is likely to be used in the current fiscal year, and only 38 percent will have been used by the end of fiscal 2010.

White House Budget Director Peter Orszag disputed that. He said that 75 percent of the money would be spent by the end of fiscal 2010, but lawmakers want more details; currently they see a CBO document that foresees significant lags in almost every major area of proposed spending.

Nariman Behravesh, chief economist for forecaster IHS Global Insight in Lexington, Mass., said he saw about two-thirds of the entire House package "really stimulating the economy. The others, we worry about whether they carry the punch."

While the bill would provide $30 billion in highway funds, for instance, CBO estimates that $788 million would be spent in the current fiscal year and $3 billion next year. It said that of $14 billion for school construction, only about $6.2 billion would be spent in the next two years.

About the only areas where money would be spent quickly was in employment and training, but even there, only $2.8 billion of $4.6 billion would be spent in the first two years, according to CBO.

Senate Democrats also have concerns about whether more help for housing and financial institutions should be included. The banking industry continues to teeter, and there's a sense last year's $700 billion in aid may not be enough to solve the problem.

Conrad also liked the idea of a big tax credit for homebuyers, which "could be out quickly."

The biggest hurdle, though, could be the Republicans. Dispirited after losing the White House and seeing their congressional ranks cut in November, they've become more energized in recent days, as the House GOP crafted a detailed stimulus plan of its own.

Its centerpiece is tax cuts. The bottom rates, now 10 percent and 15 percent, would drop to 5 percent and 10 percent. That cut, Republicans estimate, could save a married couple filing jointly as much as $3,200 annually.

"We can get fast-acting tax relief in the hands of American families and small businesses, because at the end of the day, government can't solve this problem," said House Republican Leader John Boehner of Ohio.

Democrats were cool to the idea, saying that reducing tax rates wouldn't give the kind of broad relief needed. They prefer reducing payroll taxes for most people by $500 per individual and $1,000 per couple.

"Democrats and Republicans went before the American people last November, and the American people overwhelmingly voted for the approach offered by Democrats," said House Majority Whip James Clyburn, D-S.C., in an interview to air Sunday on C-Span's "Newsmakers."

Many Republicans also have another major concern: The size of the spending package. They fear it would drive up a deficit already estimated to be $1.2 trillion this fiscal year.

"There's this notion that you can spend your way to prosperity, but people forget there is a national debt, and it affects the economy too," said Sen. Michael Crapo, R-Idaho, a Senate Budget Committee member.

In lengthy, detailed responses to written questions from the Senate Finance Committee, Timothy Geithner, the nominee for Treasury secretary, challenged the criticisms.

He said the CBO report didn't analyze some of the most important job creation and retention components of the stimulus plan. For instance, Geithner cited a tax provision allowing companies to accelerate the depreciation of equipment and inventory, and fiscal aid to states. These two efforts "we believe will have quick spend-out rates" and thus help the economy fast.

The Treasury nominee disputed the notion that cutting taxes would create more economic growth than the spending plan. He said new studies that take into account the historic low interest rates show the stimulus plan would indeed jolt the economy.

"The 'bang for the buck' of the combination of spending proposals is approximately $1.57 for every $1 spent," Geithner wrote.

He didn't close the door on amending the stimulus plan, however.

"We are open to considering ways of improving the short term impact of the proposals," he wrote.

He may have no choice. Democrats control 58 Senate seats, and 60 votes are needed to stop a filibuster. The Senate expects to begin debate late in the week, with final votes the following week.

Senate Republican Leader Mitch McConnell, R-Ky., has been taking every opportunity in recent weeks to praise Obama, and did so again Friday at a National Press Club lunch.

"Republicans need to re-evaluate the way decisions are made in Washington, and so do Democrats," he said.

Obama, in turn, plans to meet again with Republican congressional leaders next week on Capitol Hill. He met at the White House with congressional leaders from both parties on Friday to discuss the plan. Boehner pronounced the Friday meeting "very productive."

There are few signs yet, however, that Democrats on Capitol Hill are eager to incorporate GOP suggestions. Asked what Republican suggestions he's including in legislation, Senate Majority Leader Harry Reid, D-Nev., had this response: "I think the main thing that the Republicans have asked for, and they're getting, is to be involved in the process."

(Halimah Abdullah contributed to this article.)

ON THE WEB

House Republicans' economic recovery plan

President Barack Obama's economic plan

MORE FROM MCCLATCHY

To ask a question about this story or any economic question, go to McClatchy's economy Q&A

Treasury nominee clears Senate hurdle, but concerns linger

Poll results suggest tax cuts won't help stimulate economy

Senate approves landmark equal pay legislation

More McClatchy politics coverage

McClatchy Newspapers 2008

McClatchy Washington Bureau is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere in the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.

Commenting FAQs | Terms of Service