Senate Buries Economic Package

Senate Democrats dealt the final blow Thursday to legislation to help the economy, ending a battle with President Bush and clearing the way for a long, tumultuous session of Congress to adjourn for the year.

But the debate over how to pull the economy out of the nation’s first recession in 10 years is bound to resume early next year, in renewed efforts by both parties to increase aid to the unemployed and in early skirmishes of midterm elections.

This year’s economic stimulus bill officially died when Senate Republicans tried to bring up a Bush-backed bill to cut taxes and expand benefits for the unemployed. Senate Majority Leader Tom Daschle (D-S.D.) used his power to block a vote, saying the bill contained too many tax cuts for businesses and the wealthy and not enough aid for the unemployed.

The GOP-led House had approved the measure shortly before 4 a.m. EST Thursday on a largely party-line vote that followed hours of debate.

Congress’ failure to agree on some version of the bill was striking, given the consensus among political leaders after the Sept. 11 terrorist attacks that decisive action was needed to help get the economy back on track.

But in the months-long, tortuous path to its demise, the bill fell victim to a witch’s brew of legislative poisons: conflicting political calculations, personal animosities and key differences on policy. It was a debate that focused on tax and health care issues that matter deeply to the two parties and their core constituencies. And it was a debate in which, until the very end, Bush took a relatively low profile, leading some in Congress to wonder if he really wanted action on a stimulus measure.

Bush sought to dispel such doubts Thursday, expressing deep frustration at the Senate’s failure to act on the House bill, which called for accelerated cuts in income tax rates, tax relief for business, expanded unemployment aid and tax credits to help the jobless buy health insurance.

“Unfortunately, that particular piece of legislation was declared dead before it even got to the Senate floor,” Bush said.

In the eyes of many economists, the bill’s collapse was a triumph of good sense over bad policy. Analysts’ enthusiasm for the measure has waned in response to tentative signs that an economic rebound may be imminent and increasing doubt about the effectiveness of provisions under consideration in Congress.

The failure to pass a stimulus bill produced little reaction Thursday in the nation’s financial markets, and several economists said they did not think the deadlock would significantly worsen the recession.

The bill’s roller-coaster journey through Congress began before Sept. 11, when Republicans were pushing for more tax cuts to shore up the sagging economy. But few Democrats were inclined to back such proposals so close to passage of a sweeping $1.35-trillion, 10-year tax cut bill in the spring.

The terrorist attacks seemed to change the political equation by inflicting serious new damage to the economy.

At first, it looked like the legislation would follow the same course as other post-Sept. 11 measures, such as the airline bailout and anti-terrorism bills, that were approved quickly with unusual bipartisan cooperation. Leaders from both chambers and parties met with Treasury Secretary Paul H. O’Neill and other administration officials in search of agreement.

Those talks essentially ended when House Republicans decided to pass a bill on their own--a measure that called for $100 billion in tax cuts for individuals and businesses and enjoyed little Democratic support.

Senate Democrats responded by producing a bill tilting more heavily toward aid to the unemployed than tax cuts. Senate Republicans killed it in the closely divided chamber. Negotiations then began between House Republicans and Senate Democrats in search of compromise, and progress was made on several issues. Republicans, for instance, agreed to expanded unemployment benefits. But the talks stalled Tuesday, largely over health care issues.

House Republicans devised a new bill that included some concessions to Democrats. But when that bill passed early Thursday on a 224-193 vote, only nine Democrats supported it.

Throughout the House debate, leading Democrats said the bill would be “dead on arrival” in the Senate.

Daschle confirmed that assessment a few hours after the House vote. “We’ve looked at the compromise one last time and concluded that it’s wrong on all counts.”

Senate Republicans decried Daschle’s decision to prevent the House bill from coming to a vote. “That is one-man rule,” said Sen. Pete V. Domenici (R-N.M.).

Daschle said he hoped to return to the issue early next year. But the array of economic and political factors that conspired to kill the bill will, for the most part, remain in play.

Measure’s Effects Called Into Question

The impetus for action has been slowed by growing skepticism over whether the legislation would actually do much to bolster the economy. And some proposals by both parties came under fire by independent analysts as well as partisan critics.

The initial bill pushed by House Republicans was criticized for including billions of dollars in tax rebates to big corporations. Even fellow Republicans in the Senate shunned the idea, which fueled accusations by Democrats that House GOP leaders were using the stimulus bill as a guise for business tax breaks not included in the spring’s tax-cut measure.

Senate Democrats got heat for adding to their version of the bill a treasure trove of special-interest provisions, including subsidies for bison-meat producers, watermelon growers and Amtrak.

The bill’s progress also was hampered by an unusually personal dimension to the fight. Republicans, including Bush’s top lieutenants, relentlessly sought to single out Daschle as the legislation’s main obstacle. The coordinated GOP effort echoed efforts by Democrats in the mid-1990s to make then-Speaker Newt Gingrich (R-Ga.) the personification of their attacks on Republicans.

As this year’s session ended, Republicans expanded their critique to blame Daschle for blocking Senate action on an array of Bush priorities, including energy and trade legislation. They accused him of doing so as a way to establish himself as a potential presidential candidate in 2004.

“If he has not already begun this political contest with the president, he will next year,” said House Majority Leader Dick Armey (R-Texas).

Among Democrats, Rep. William M. Thomas (R-Bakersfield) emerged as a prime source of contention. Thomas, who as chairman of the House Ways and Means Committee was the main sponsor of the initial GOP stimulus bill, is regarded as abrasive even by some Republican colleagues who admire his mastery of policy. Throughout negotiations on a compromise bill, Democrats blamed him for failing to strive for bipartisanship early in the process.

Still, what ultimately may have doomed the bill was that economic policy, unlike other issues Congress turned to following Sept. 11, splits the parties into well-worn political trenches.

“Economic policy to a large extent is what defines our parties,” Daschle said.

Issues such as how to apportion tax cuts and how to provide health insurance also are important to the business and labor groups on which the two parties depend for campaign financing. That meant the political calculus for both parties was double-edged: While there may be political cost for failing to produce a bill, there is also risk in compromising on principles dear to core constituencies.

Some centrists bemoaned the partisan pressures that pulled the legislation apart. “We’ve been on a downward spiral,” said Rep. Jane Harman (D-Venice). “There was a deal to be cut here, no question about it.”

Among Democrats in California’s House delegation, Harman was the only one to vote for the revised GOP bill Thursday, citing the more generous package of unemployment benefits it offered. All of the delegation’s GOP members backed the bill.

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Times staff writer Warren Vieth contributed to this report.