Today marks a new day for government's role in economy

McClatchy NewspapersFebruary 9, 2009 

WASHINGTON — The Senate's vote on — and the likely approval of — an $838 billion economic-stimulus plan Tuesday will signal a decisive new expansion of the government's role in the economy.

The package will include tens of billions of dollars to help states pay for health-care, education and highways. It'll provide tax breaks for new car and home buyers. It will help to computerize health records and invest heavily in 21st-century renewable energy technology.

"Just think about Rosie the Riveter manufacturing solar panels and wind turbines," said Sen. Amy Klobuchar, D-Minn., describing the bill's long-term impact.

The measure's reach also is limited, however. It won't prove an immediate economic cure-all, and its passage is but a first step in a yearlong series of federal prescriptions for the ailing economy.

An hour before the Senate's vote at noon Tuesday, Treasury Secretary Timothy Geithner is scheduled to unveil his new financial-industry aid plan. The Federal Reserve's efforts to melt frozen credit markets also are expanding. Later this spring, Congress will consider how to spend the rest of this fiscal year's federal monies after President Barack Obama releases a detailed fiscal 2010 budget. The stimulus is thus but one part of a multi-front government counterattack on the recession.

The Senate stimulus plan cleared a key procedural hurdle Monday when members voted 61-36 to cut off debate. The vote Tuesday on the plan itself will come 13 days after the House of Representatives passed a similar version.

In the next step, top lawmakers from both houses will meet to reconcile the differences between the House and Senate bills. Once a compromise is reached, probably Thursday, each house will debate briefly and take final votes.

The negotiations promise to be tense but probably not hopeless, because the Democratic majorities in both houses will have voted to expand the government's role in a wide variety of social and educational programs. Compromise should be on Democratic terms, because Republicans don't have enough votes to impose their preference for less spending and bigger tax cuts.

"There certainly will be a change in direction compared to the previous administration," veteran Washington budget analyst Stan Collender said.

There are significant differences, however.

The Senate wants to give some consumers a break from the alternative minimum tax, at a cost of $70 billion over 10 years. The House didn't include the provision.

The House wants to spend $20 billion for school construction and create a $79 billion "State Fiscal Stabilization Fund" to help pay education expenses. The Senate cut the construction money and its stabilization fund is only about half the House's amount.

There are a series of smaller disagreements. The Senate includes tax breaks for new car buyers and homeowners that the House does not, and the Senate has a one-year 50 percent subsidy for health-care premiums for unemployed consumers, while the House has a 65 percent subsidy.

With Democrats from both houses in charge of the talks, however, and Obama pushing hard for a package, the two sides are expected to split the differences and emerge with a plan to pump about $800 billion into the economy through Sept. 30, 2010.

Democrats will praise the details, Republicans will criticize them and independent analysts will offer mostly hedged praise. The last obstacle will be whether three Republicans continue to break ranks with their party to put through the final conference version in the Senate. If they don't, it'll be back to the drawing board, but few analysts expect that.

"This should create a little bit of momentum," said Brian Bethune, chief U.S. financial economist at IHS Global Insight in Lexington, Mass. "Put enough warm coals into the fireplace and eventually you get flames."

The nonpartisan Congressional Budget Office, however, warned that stimulus packages contain no guarantees.

"The macroeconomic impacts of any economic stimulus program are very uncertain," CBO Director Douglas Elmendorf said in a letter last week to Sen. Judd Gregg, R-N.H., who's now the president's nominee to head the Commerce Department.

Even analysts who're concerned that lawmakers are ignoring the ballooning federal deficit — which the CBO estimates at $1.2 trillion this year even before the stimulus is factored in — concede that some kind of bill is necessary, however.

"There is no right answer as to what to do, and I don't know what the right size of the bill should be," said Maya MacGuineas, the president of the Committee for a Responsible Federal Budget, a watchdog group.

The House and Senate bills concur on most key provisions. Both have Obama's $139.8 billion "Making Work Pay" tax break, which gives effective $500 federal income-tax rebates to most taxpayers in 2009 and 2010.

Both provide significant money for rebuilding highways and bridges and repairing water and sewer systems; spend $27 billion on giving unemployed workers an extra 20 to 33 weeks of benefits; and give states $87 billion to help Medicaid, the joint state-federal program that provides health care for poor people and those with disabilities.

Most Republicans, as well as some Democrats, remain concerned that the bills have too much spending and not enough tax cuts.

Sen. Charles Grassley of Iowa, the top Republican on the Senate Finance Committee, called the tax relief "a pretty puny amount."

History has shown that massive government spending doesn't resuscitate ailing economies, contended Senate Republican Policy Committee Chairman John Ensign of Nevada.

"Even if you believe the New Deal was helpful," he said, "do we really want to take five, seven, 10 years to get out of the economic problems we have today? The New Deal never brought us out of the Depression."

Such arguments ignore contemporary reality, countered budget analyst Collender, who noted that most of the proposed stimulus spending doesn't create new agencies or programs but adds to those that already are running.

A big chunk aims to respond to anticipated future needs. Both bills have billions for renewable energy and energy-efficiency research and development. Each has about $4.5 billion to begin modernizing the electricity grid as well as billions to health providers to modernize their information technology systems. Money also would be provided to expand broadband access in remote areas of the country.

Such spending may not provide much immediate stimulus, but many analysts argue that it's still worth doing. Just don't expect miracles.

"The stimulus should provide some positive input," Collender said. "But you just don't get a single injection or operation and expect all the problems to be fixed."

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McClatchy Newspapers 2009

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