Congress Grapples With Bill to Spur the Economy

After weeks of head-butting in Congress over how to rev up the economy, the outlines of a legislative compromise are clear. But a key ingredient remains missing: The political will to strike a deal.

Despite new reports confirming that the economy is in recession and consumer confidence is tumbling, lawmakers in both parties seem unwilling to make the concessions needed for agreement on an economic stimulus package.

The two sides either agree or are not very far apart on several of the plan’s core elements. These include cash payments to lower-income workers; tax breaks to encourage investment by business; an extending unemployment benefits and health insurance aid for the jobless.

And a new proposal to suspend payroll taxes for Medicare and Social Security for the month of December--thus increasing take-home pay during the holiday season--has been well received in both parties. The plan would primarily benefit individuals with annual salaries of less than $80,400, the current cutoff for Social Security withholding.

But Congress has been unable to find middle ground on remaining issues--including President Bush’s proposal to speed up scheduled cuts in income tax rates and the push by Democrats to spend $15 billion on measures to beef up homeland security--that seem eminently resolvable to veterans of legislative compromise.

“This is not rocket science,” said Sen. John B. Breaux (D-La.). “You’ve got to combine the features of both [parties’ proposals] to get something that’s politically acceptable.”

But even Breaux says the odds of Congress ending the impasse are no better than 50-50. And House Majority Leader Dick Armey (R-Texas) for the first time said Tuesday it was possible that Congress would adjourn for the year without enacting any economic stimulus legislation.

“If you can’t get a real economic stimulus package . . . then you’re better off doing nothing,” Armey said.

Legislation that narrowly passed the House last month on a largely party-line vote would cut business taxes, speed up scheduled income tax-rate cuts for individuals and send checks to about 35 million people who did not get the full benefit of the tax rebate provided earlier this year. The tax breaks would total about $100 billion.

Senate Democrats tried before Thanksgiving to pass a $73-billion bill that was more skewed to spending for aid to the unemployed and homeland security, but it was blocked by Republicans. As lawmakers returned from a weeklong Thanksgiving recess Tuesday, the measure remained dead in the water.

Senate Republicans tried Tuesday to break the impasse by offering the new proposal for a payroll tax “holiday” in December. They argued this would quickly funnel $38 billion in tax cuts to consumers, giving the economy an immediate boost.

Although the idea was popular among members of both parties, it did nothing to surmount the biggest obstacle to compromise--the insistence by Democrats that negotiations also address their homeland security plans, which they said would stimulate the economy while investing in law enforcement, public health and other domestic programs. Republicans refuse to consider those proposals, saying they have nothing to do with the economy. They also back Bush’s assertion that no more spending on these programs is needed this year.

Many analysts and lawmakers say that given the deadlock, only another push by Bush can generate the political momentum needed for an agreement. He is expected to try again today, when he conducts his weekly breakfast meeting with congressional leaders.

But even if Bush wades in more deeply, it’s not clear he can rescue a meaningful initiative from the legislative mire before the end of the year.

Part of the problem is the mixed signals about the state of the economy. On the troubling side, Monday’s report by the National Bureau of Economic Research that the nation has been in a recession since March was followed Tuesday by news that consumer confidence has reached its lowest level in more than seven years.

But many forecasters point to signs of a recovery, including strong sales figures for new homes and automobiles.

Congress’ incentive to compromise also has been sapped by nagging skepticism that any of the proposed legislative fixes would have much impact on the economy.

“I don’t think there’s any big rush to do something [because] both sides feel there isn’t much you can do legislatively,” said a senior House Democratic aide.

With the economic value dubious, political considerations loom large.

“Everyone is busy protecting their political flanks instead of worrying about the economy,” said Stanley E. Collender, a budget expert with the public relations firm of Fleishman Hillard. “From a political standpoint, it’s better to be representing your constituents and stand up for what they want than to compromise and get a bill that everyone thinks is worthless.”

As Democrats look toward the 2002 congressional campaigns, they are assuming Bush and his fellow Republicans will bear the blame for inaction and a continued economic downturn.

“Bush would like this to be Osama bin Laden’s economy, but the reality is it’s Bush’s economy,” said Mark Mellman, a Democratic pollster. “I don’t think Democrats feel any particular compulsion to bail him out if he’s not going to do what Democrats think need to be done to help working people.”

Republicans respond that if the economic stimulus bill dies, Senate Majority Leader Tom Daschle (D-S.D.) and Senate Democrats will reap their fair share of blame.

“If we can’t move forward, then Daschle is responsible,” said House Ways and Means Chairman William M. Thomas (R-Bakersfield).

Pressure on Senate Democrats to be more willing to compromise may be increased by the Senate Republican proposal to suspend payroll taxes for a month. Proposing middle ground on other issues as well, the GOP plan would:

* Provide a two-year tax break to allow businesses to write off more quickly the cost of equipment and other capital investments. Under the GOP-sponsored House bill, the tax break would last three years; Senate Democrats have wanted to limit it to one year.

* Repeal the alternative minimum tax for corporations, a system established to ensure every business pays at least some tax. The Senate Republican plan dropped a controversial feature of the House bill to allow corporations to recoup money paid since the alternative tax took effect 15 years ago.

Although the GOP plan could point to compromise, Daschle said Tuesday that no deal would be reached until Republicans guarantee a vote on Democrats’ $15-billion homeland security plan.

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Times staff writers Nick Anderson and James Gerstenzang contributed to this report.

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Economic Plan’s Trouble Spots

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