Fiscal Package Worth Billions Almost Certain
President Bush and congressional leaders agreed Wednesday to assemble a new anti-recession package containing as much as $75 billion in tax cuts and emergency spending to help the economy recover from the Sept. 11 terrorist attacks.
Passage of a big stimulus initiative became all but certain after Bush declared publicly that its time had come and Federal Reserve Chairman Alan Greenspan signaled his assent in private talks with congressional leaders.
“A couple of weeks ago they said stop. Now they said go. So we’re going to go,” said John Feehery, spokesman for House Speaker J. Dennis Hastert (R-Ill.).
The package, larger than most lawmakers had been considering, would force the government to engage in deficit spending after several years of running surpluses and whittling down the federal debt.
But even as all sides endorsed the need to act, bickering continued over the specific tax cuts and spending increases the package should contain. Some lawmakers also disputed whether the proposals under consideration would do much to energize the economy, or whether they would even take effect before a recovery was already underway.
Action proceeded in three places:
* Bush, speaking to business leaders in New York, embraced a three-part approach that would stimulate the economy with relief for taxpayers, businesses and laid-off workers. “I know there are people hurting in America,” the president said. “Our government will do everything we can to get our economy growing.”
* Treasury Secretary Paul H. O’Neill, in testimony before the Senate Finance Committee, outlined the options at the top of the administration’s short list and said the total package should add up to $60 billion to $75 billion.
* Greenspan, former Treasury Secretary Robert E. Rubin and White House economic advisor Lawrence B. Lindsey, meeting with congressional leaders of both parties, gave the green light to proceed.
Although it may take several weeks to settle on the specific provisions, the administration scored something of a breakthrough just by setting a price tag for the overall package. After complaints that a lack of White House leadership had slowed the process, O’Neill’s presentation laid to rest uncertainty about whether Bush would support any additional stimulus.
O’Neill’s range of $60 billion to $75 billion exceeded the target set by some of the lawmakers who consulted last week with Greenspan and Rubin. Senate Majority Leader Tom Daschle (D-S.D.) said after that meeting that Democrats favored a stimulus package of $50 billion.
But after Wednesday’s session with Greenspan, Rubin and Lindsey, Daschle indicated that the Democrats had left themselves some maneuvering room. And House Majority Leader Dick Armey (R-Texas) emerged from that meeting to say that the lawmakers had favored a package in the neighborhood of the amount proposed by the administration.
“There was clear agreement we need to do a stimulus package, and we need to do it as quick as we can,” Armey said.
The new stimulus package would be in addition to the $40 billion in emergency spending and the $15-billion airline bailout approved by Congress since the Sept. 11 terrorist attacks on the World Trade Center and Pentagon.
The most recent estimate by the House and Senate budget committee staffs puts the surplus for fiscal 2002, which began Monday, at $52 billion. That estimate takes into account all action to date except on the fiscal stimulus package. The new package seems likely to exceed that amount--and thus to throw the budget back into deficit.
But it is the components rather than the overall size of the final package that are likely to generate controversy.
O’Neill said that for individuals, the administration wanted to speed up the 10-year tax cuts approved earlier this year or send rebates to the mostly lower-income working Americans who didn’t receive any of the $38 billion in refund checks mailed out this fall.
For businesses, O’Neill suggested an investment expense or accelerated depreciation plan that would let firms write off more quickly the costs of new plants and equipment.
For workers who lose their jobs during the economic downturn, he said the president supported an extension of unemployment benefits, which currently end after 26 weeks.
O’Neill also expressed interest in expanding a grant program that gives money to states to help workers who lose their jobs because of natural disasters or other emergencies.
Although those proposals were the current favorites, O’Neill assured lawmakers the White House is willing to consider anything that would help the economy in the short run without undermining its long-term prospects.
But it was clear that some proposals had fallen from favor, including a corporate income tax cut, a capital gains tax reduction and a tax credit for new investments. Similarly, there seemed to be little support for raising the minimum wage as part of an economic stimulus plan.
The priorities outlined by O’Neill put Bush at odds with some Republicans who do not want Congress to include more spending in the stimulus package. They fear Bush’s willingness to embrace expanded unemployment benefits and other Democratic proposals will sharply reduce the amount of money available for business tax cuts, which they consider more effective forms of stimulus.
“These are all the same old ideas that were rejected in the last tax package, primarily giving tax cuts to people who do not pay taxes,” said Sen. Phil Gramm (R-Texas). “What I’m not sure of at this moment is whether we’re going to get any stimulus in the stimulus package.”
Although the White House has indicated it was willing to consider non-tax provisions such as expanded unemployment benefits or spending on infrastructure, they face resistance from Armey and other conservative Republicans.
“You’re not going to be able to buy yourself out of a recession,” Armey said. “Consumption is the gas in the tank; investment is the ignition.” He said he intended to push for a tax cut as large as $150 billion.
Some Republicans are bridling at the political dynamic that has shaped the White House’s approach to Congress since Sept. 11: Bush and GOP leaders have bent over backward to work with Democratic leaders toward a bipartisan response to the terrorist attacks and their economic fallout.
In the process, Bush and congressional leaders of both parties have had to contend with criticism from their rank and file that they have compromised too much. That tension may become especially acute in hammering out the details of the stimulus package.
According to sources familiar with the discussions, Greenspan recommended that the package include short-term tax relief measures, including expensing of new investments by business, relief for corporations that pay the alternative minimum tax, and individual tax rebates or payroll tax relief.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Stimulus: the Short List Leading contenders under consideration by the White House and Congress for an economic stimulus package:
* Speeding up the effective date of future reductions in the 10-year tax-cut package enacted in June.
* Giving tax rebates to workers who pay payroll taxes but do not pay enough income taxes to have qualified for the first round of rebates.
* Letting businesses write off the cost of new investments through accelerated depreciation or expensing.
* Extending unemployment benefits from 26 weeks now to perhaps 39 weeks for Americans who lose their jobs during the economic downturn.
Get our Essential Politics newsletter
The latest news, analysis and insights from our politics team.
You may occasionally receive promotional content from the Los Angeles Times.