Political wrangling bogs down economic stimulus package

The drive for quick action on a huge economic stimulus package has become entangled in the push and pull of Washington politics and now may not clear Congress until mid-February.

Democrats had hoped to have the roughly $775-billion emergency measure on President-elect Barack Obama’s desk when he entered the Oval Office on Jan. 20. But it is bogging down in a welter of competing ideas, ideologies and agendas, and may be further slowed by Obama’s desire to win over as many Republicans as possible.

Economists from across the political spectrum warn that if the stimulus package comes too late or loses focus, it could fall short of rescuing the economy from the worst recession since the Depression. That could mean more job losses and another hit to consumer confidence.

“Businesses are effectively shut down. And there’s no other response except a response from you, from the government,” economist Mark Zandi of Moody’s Economy.com said during a House Democratic forum Wednesday. “Confidence has been shattered. . . . The only way out is through aggressive and quick government action.”

Obama will make the case for urgent congressional action in a speech today. And House Speaker Nancy Pelosi (D-San Francisco) is so concerned about a delay that she threatened, in an interview Wednesday, to cancel her chamber’s Presidents Day recess and hold the House in session if legislation had not reached Obama’s desk by the Feb. 16 holiday.

“A failure to act quickly can only lead to more job losses and more economic pain for Americans,” she said at the forum.

There is broad agreement on the need for an economic stimulus. But for political and procedural reasons, Congress has difficulty operating at high speed. And some members are resisting fast action because of broad dissatisfaction with the $700-billion financial industry rescue fund, which they say was flawed and passed in haste by Congress last fall.

The size and scope of the stimulus, which under Obama’s formulation would include complex tax cuts and targeted government spending, make the legislative process difficult, said Rep. Charles B. Rangel (D-N.Y.), chairman of the tax-writing House Ways and Means Committee. Further complicating the matter is that Obama is not yet president, and that his Cabinet selections have not been confirmed.

“If I had hearings, who would I call?” asked Rangel, who echoed the need to act quickly. “All we have is the broad concepts, and we have the responsibility of putting that into legislative form.”

Mark Isakowitz, a Republican lobbyist who follows tax policy, said drafting such a bill -- with about $300 billion in tax cuts -- is difficult.

“Can you really do a bill quickly based on the force of Obama’s popularity?” he asked. “It’s dawning on people that the laws of Washington have not been suspended.”

One of those laws is that members of Congress always try to put their stamp on any high-profile bill. “We want to leave our own imprint on it,” said Senate Finance Committee Chairman Max Baucus (D-Mont). “A lot of members are just starting to think about it and are saying they have ideas too.”

Baucus mentioned his own “strong interest in more energy-producing incentives than we’ve seen so far.”

Sen. Thomas R. Carper (D-Del.) wants more money for environmentally friendly jobs. And in the House, the fiscally conservative Blue Dog Democrats are worried about the exploding budget deficit and want to include some commitment to future fiscal discipline.

Obama has said he will not allow the stimulus to contain any congressional pet spending projects, the controversial items known as earmarks. But lawmakers could work to tilt the tax cuts or government spending their way. The delay also gives interest groups time to try to influence the process, and many have been weighing in with wish lists.

Beyond the complexities of drafting the legislation, Democrats and Republicans are at odds over the focus of the stimulus.

Democrats are emphasizing government spending, particularly on roads, bridges and other infrastructure, to boost the economy and create jobs. Republicans say that amount of spending is wasteful -- particularly after the Congressional Budget Office on Wednesday projected a $1.2-trillion federal budget deficit for the current fiscal year. They are pushing for the bulk of the stimulus to come in the form of tax cuts.

Obama has tried to reach out to Republicans by proposing that about 40% of the stimulus -- roughly $300 billion -- would be used for tax cuts, including about $100 billion in breaks for businesses to encourage new investment and job creation.

Many Republicans are pleased that Obama is planning a significant tax cut. But some GOP lawmakers are skeptical that tax cuts would do much for the economy.

“The last [tax-cut] stimulus didn’t stimulate the economy at all,” said Sen. Judd Gregg (R-N.H.), ranking Republican on the Senate Budget Committee, referring to the $100-billion-plus in tax rebates sent out last year.

Obama pledged a $500 tax credit for most workers during the campaign, costing the government as much as $150 billion. That proposal is widely thought to be a keystone of his stimulus plan. But lawmakers of both parties as well as many independent economists questioned whether such a tax reduction would be big enough to make much economic difference.

A Democratic official said there had been talk about bumping up the tax cut portion of the stimulus bill to lure more Republicans. But Rep. Patrick J. Kennedy (D-R.I.) said such a move could provoke resistance from Democrats.

“It’s great to have our colleagues on board with us, but I didn’t work hard to win back the majority to have to wait to get a green light from Republicans on everything,” he said. “We’ve got good majorities now, and we’ve got to use them to do the kinds of work we weren’t able to do when we didn’t have those kinds of majorities.”

House Minority Leader John A. Boehner (R-Ohio) on Wednesday complained about Democrats’ plans for “massive increases in government spending.” His staff distributed six pages of quotes from economists criticizing a stimulus bill that includes a large boost in government spending.

But none carried the weight of Harvard economist Martin Feldstein, a former top advisor to President Reagan, who told House Democrats on Wednesday that this recession called for a mix of tax cuts and significant government spending.

“It pains me to say that, because I’m a fiscal conservative who dislikes budget deficits and dislikes increases in government spending,” he said. “But it is important to have that fiscal stimulus at this time and to design the tax cuts and the spending changes in the most cost-effective way.”

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jim.puzzanghera@latimes.com

janet.hook@latimes.com

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Times staff writers Peter G. Gosselin and Doyle McManus contributed to this report.