Democrats Try to Find Their Voice on Economy

Democrats are gleefully seizing on the White House shake-up of economic advisors as evidence that its policy has failed, but they are also acknowledging another bracing reality: They don’t have a coherent economic policy of their own.

Still reeling from the November elections, House Democrats on Monday convened a two-day closed-door meeting to hear advice from economists and begin developing an economic growth plan that pulls their frayed party together.

Democrats are under pressure to quickly resolve their postelection family feuds because President Bush is expected to unveil a new round of tax cuts to spur the economy early next year.

A shaky consensus among Democrats is emerging around a few broad notions. Support is building for a short-term economic stimulus package of tax cuts and unemployment benefits, and a growing number of Democrats have been emboldened to challenge parts of Bush’s 2001 tax cut -- at least for upper-income taxpayers.

But the opposition party is still speaking in a jumble of voices: potential presidential candidates trying to break out of the pack; governors struggling to balance their own budgets; cautious congressional leaders struggling to straddle party divisions; balky rank-and-file lawmakers fuming at the party’s clumsy handling of economic issues during the 2002 campaign.

“I can’t tell you what the Democratic agenda is,” said Rep. Bob Filner (D-San Diego) as he headed into the House Democrats’ conclave. “I hope we have one -- and very soon.”

After weeks of gloomy postelection introspection, Democrats celebrated a flash of good news over the weekend when Democratic Sen. Mary Landrieu of Louisiana won reelection in a runoff against Suzanne Haik Terrell, the Republican elections commissioner in Louisiana, who had vigorous backing from Bush. That victory, the Democrats said, was a vindication of their view that the 2002 elections did not signify a broad mandate for GOP economic policies.

“There’s a myth out there that this last cycle was an overwhelming victory for Republicans,” said Senate Democratic Leader Tom Daschle of South Dakota. “Well, I think Louisiana demonstrated without a doubt that there wasn’t any overwhelming victory at all.”

And as Bush moved Monday to patch up the holes in his economic team by naming a replacement for Treasury Secretary Paul H. O’Neill, Democrats said the maneuvering signaled a failure of economic policy, not just of personnel.

“We’re at a point where the economy has not worked,” said House Democratic Leader Nancy Pelosi of San Francisco, who convened the party caucus on the economy as one of her first acts after being elected leader in November. “It finally has dawned on the president of the United States.”

But especially in the aftermath of the 2002 elections, Democrats believe that they cannot afford to just criticize Bush. They are eager to formulate an alternative economic policy -- and blame some of their election losses on their failure to do so sooner.

“People knew what we’re against but didn’t have as good an idea what we were for,” said Rep. Zoe Lofgren (D-San Jose). “We didn’t do a good enough job of outlining that.”

Doing a better job won’t be easy because Democrats find themselves in a box: If they push an economic stimulus plan, they risk increasing the deficit -- a potential blow to the party’s long-standing effort to change its image as a pack of tax-and-spend liberals. A new round of tax cuts also would compete for resources with other Democratic priorities, such as a prescription drug benefit for the elderly and education programs.

When asked earlier in the day about the Democrats’ economic program, Daschle said it included aiding financially strapped states, increasing the minimum wage and extending unemployment benefits -- aims widely shared by Democrats. Much more divisive is whether to revise Bush’s $1.3-trillion tax cut passed in 2001 and being phased in over the next decade.

“The party has not found a common position on the centerpiece of Bushonomics,” said Will Marshall, president of the Progressive Policy Institute, a centrist research group in Washington. “That’s the elephant in the living room. That hurt us in the midterm election.”

Before the election, few Democrats were willing to tamper with the tax cut. Now, more and more leading Democrats -- especially among potential presidential candidates -- are arguing for a freeze or delay in aspects of the Bush plan such as the final phases of the tax cut for upper-income brackets and the elimination of the estate tax.

But many Democrats in Congress remain wary of rolling back even part of the tax cut -- because many voted for the bill or because they fear that Republicans will portray it as an effort to raise taxes.

Rep. Calvin M. Dooley (D-Visalia) warned that a partisan fight over freezing the Bush tax cut could make it harder to sell Democrats’ ideas for economic stimulus proposals.

“The Democratic message on tax cuts in the short term for stimulating the economy could be overshadowed by a proposal that has a freeze” on future tax cuts, Dooley said.

Another idea that is gathering steam is a temporary cut in payroll taxes -- the 7.65% tax paid by both employers and employees into the Social Security and Medicare trust funds. Payroll tax relief appeals to many Democrats because it helps working poor families who do not earn enough to pay income taxes and thus are unaffected by income tax relief.

Versions of the idea -- often referred to as a “payroll tax holiday” -- have been promoted by sources as diverse as liberal Sens. Jon Corzine (D-N.J.) and John F. Kerry (D-Mass.), the newly reelected centrist Landrieu, conservative Sen. Pete Domenici (R-N.M.), and the Business Roundtable, a Washington-based association of corporate chief executives.

Despite its bipartisan pedigree, a payroll tax cut is no slam dunk because it runs into resistance in both parties. The White House has given the idea the cold shoulder, in part because of its high cost -- about $100 billion for a six-month tax holiday. Some Democrats are wary because half the price tag goes to employers, not employees. People in both parties fear that it further weakens the ailing Social Security financing system.

“There’s a lot of problems with it,” said Rep. Robert T. Matsui (D-Sacramento).

As they craft an economic strategy to counter the White House, Democratic leaders must also heed the views of a rising force in their party: governors.

On Monday, many of those governors and governors-elect met in Washington with Daschle and Pelosi to help craft a party message. It was clear that the task would not be easy.

Many governors, facing looming budget problems at home, said they would push for more federal aid for education, transportation and health care -- another claim on the Treasury that could increase the deficit.

And while the idea of making Bush’s 2001 tax cut permanent is heresy among most Democrats, Gov.-elect Bill Richardson of New Mexico said he would support the idea -- as long as it is tied to a package of job creation and investment he and other Democrats can support.

“We need to be careful to have a positive economic growth message -- not just criticism of the president,” Richardson said.

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Times staff writer Nick Anderson contributed to this report.