Congress and the Stimulus Package

The NY Times article below is a good analysis of the differences between the House and Senate bills. The House bill is directing money to the states and local governments to help stimulate the state and local economies. The Senate version strikes much of this funding. Many members of Congress, in both parties, believe that states have been for a decade building big government programs and refusing to raise taxes to pay for these new programs. Also many believe that states have to do a better job of cutting budgets now and cannot be turning to the federal government for aid. California's Governor is not able or willing to raise taxes in his state and he wants the most funding for his state. A similar story from many Governors. When we look at the devastation that the banking/crdit crisis and the economic failures all across America there does not seem to be much that Governor's and state legislature's can do about a solution--it has to come from the federal Government, in the opinion of many. Loss of state aid in the stimulus bill will cause hundreds of thousands of jobs to be lost in the states.

NY Times
February 8, 2009
Divisions Over the Competing Stimulus Bills
By DAVID M. HERSZENHORN
WASHINGTON — The Senate agreement on a roughly $827 billion economic stimulus bill sets up tough negotiations with the House, primarily over tens of billions of dollars in aid to states and local governments, tax provisions, and education, health and renewable energy programs.

Congress is racing to try to finalize the legislation this week.

The price tag for the Senate plan is now only slightly more than the $820 billion cost of the measure adopted by the House. Both plans are intended to blunt the recession with a combination of tax cuts and government spending on public works and other programs to create more than three million jobs.

But the competing bills now reflect substantially different approaches. The House puts greater emphasis on helping states and localities avoid wide-scale cuts in services and layoffs of public employees. The Senate cut $40 billion of that aid from its bill, which is expected to be approved Tuesday.

The Senate plan, reached in an agreement late Friday between Democrats and three moderate Republicans, focuses somewhat more heavily on tax cuts, provides far less generous health care subsidies for the unemployed and lowers a proposed increase in food stamps.

To help allay Republican concerns about the cost, the Senate proposal even scales back President Obama’s signature middle-class tax cut. The Senate plan also creates new tax incentives to encourage Americans to buy homes and cars within the next year.

Republican opponents continued to rail against the stimulus plan on the Senate floor on Saturday, though it appeared they would not have the votes to stop it.

The negotiations in Congress will test whether Democrats, who say they won a mandate in November to pursue their goals, are willing to give up some favored long-term policy initiatives to win over more Republican votes.

The talks will also test whether any but the most moderate Republicans will be willing to support the Obama administration, or whether they will simply recoil in an opposition stance.

Speaker Nancy Pelosi, who was in Williamsburg, Va., on a retreat with her fellow House Democrats on Friday, called the emerging Senate cuts to the stimulus program “very damaging” and said she was “very much opposed to them.” But after the Senate reached a deal, Ms. Pelosi expressed resolve to complete the legislation in the days ahead.

Mr. Obama, who has made the economic recovery effort the centerpiece of his agenda, is expected to take a stronger hand in the negotiations and will embark on an aggressive public lobbying campaign.

He will hold a meeting in Indiana on Monday, followed by a formal White House news conference, the first of his term, in prime time on Monday night. He will pitch the plan again on Tuesday in Florida and on Wednesday in Virginia.

In his weekly radio and Internet address on Saturday, the president praised the Senate deal and urged quick passage of a final bill.

“The time for action is now,” Mr. Obama said. “If we don’t move swiftly to put this plan in motion, our economic crisis could become a national catastrophe.”

Also on Monday, Treasury Secretary Timothy F. Geithner is expected to announce the broad outlines of a rescue plan for the financial industry. The administration hopes that the announcement will quiet some critics in Congress who say not enough is being done for the housing sector.

After Senate Democrats reached their deal with moderate Republicans on Friday, Republicans who are more conservative refused to put the legislative process on a fast track.

Senator David Vitter, Republican of Louisiana, insisted that the deal required careful deliberation and said he would spend the weekend reviewing it, even though it was all but certain that he would not support the measure.

As a result, the Senate met for a rare Saturday session, and Republicans delivered some of their harshest criticism of Mr. Obama since he took office, suggesting that he was pressing Congress to act irresponsibly by warning of imminent catastrophe.

“In discussing with the American people his approach to the stimulus of our economy, he has first really used some dangerous words,” said Senator Jon Kyl of Arizona, the No. 2 Republican. Mr. Kyl added, “It seems to me that the president is rather casually throwing out some careless language.”

The majority leader, Senator Harry Reid of Nevada, said Congress would move quickly to get the bill into conference, in hopes of sending the bill to the White House by the week’s end.

As it stands, three Republicans are expected to join the 58 Democrats in favor of the bill, and the negotiations may tilt slightly in the Senate’s favor as officials try to keep that coalition in place.

Both the House and the Senate must vote again to approve the final legislation, leaving a chance of unexpected pitfalls.

The main fight is likely to be over the Senate’s proposal to cut $40 billion from proposed aid to states. Such aid does not necessarily lift the economy, but it prevents states from carrying out cuts that could make the recession worse, and the money can be deployed quickly, a challenge in any stimulus.

The $40 billion was the largest cut in a paring back of the Senate proposal that helped seal a deal between Democrats and the moderate Republicans, thanks to the efforts of a bipartisan group led by Senators Susan Collins, Republican of Maine, and Ben Nelson, Democrat of Nebraska.

Another big difference is the Senate’s inclusion of nearly $70 billion to protect thousands of middle-class Americans from paying the alternative minimum tax in 2009, sparing them from a system originally intended to prevent the wealthy from claiming too many tax deductions.

House Democratic leaders have indicated a willingness to retain that provision even though it could require them to give up tens of billions of dollars in favored spending programs and force them to make wrenching choices.

Adjusting the alternative minimum tax is also unlikely to give much extra lift to the economy, because Congress has adopted similar fixes for years and would probably have done so again regardless of the stimulus.

Other trims the Senate settled on eliminated $19.5 billion in construction aid for schools and colleges and sliced proposed new aid for the Head Start early childhood program by $1 billion.

In some cases, the cuts to the Senate bill brought it closer to the House proposal. For instance, the senators reduced financing to expand broadband data networks in rural and underserved areas to $7 billion from $9 billion. The House has proposed $6 billion.

Some of the Senate’s changes clearly reflected the personal priorities of lawmakers, especially the moderate Republicans who were instrumental in reaching an accord.

The Senate deal, for example, reduced proposed aid to NASA and the National Science Foundation by $200 million each.

But it added $6.5 billion for medical research at the National Institutes of Health, favored by Senator Arlen Specter of Pennsylvania, one of the three Republicans supporting the plan

Even with Democrats controlling both chambers, the negotiations are likely to be difficult. House Democrats have shown little inclination to cater to Republican wishes, especially given the unwillingness of Republicans to vote for the bill.

So far, Mr. Obama and his aides have strongly resisted any change to his proposal for a middle-class tax cut, which was one of his main campaign promises.

It would provide a tax credit of up to $500 for individuals and up to $1,000 for couples, with the credit phasing out for individuals earning more than $75,000 a year and couples more than $150,000.

The Senate bill would lower that income cap to $70,000 for individuals and $140,000 for couples, saving the government $2 billion but potentially reducing the effectiveness of a tax break that is intended to lift consumer spending.

It is unclear how Congress will deal with two provisions aimed directly at general consumers, including an $11 billion tax break in the Senate bill to spur car sales by allowing buyers to deduct any sales tax and one year of loan interest.

The chambers must reconcile competing homebuyer tax credits.

To stabilize real estate prices, the House would give first-time homebuyers a tax credit of 10 percent of a home’s cost, up to $7,500, with income caps reducing the credit for individuals earning at least $75,000 and couples earning $150,000.

The Senate plan includes a more generous credit of 10 percent, up to $15,000, that would be available to all homebuyers, with no income limits.

A formal conference to resolve the differences between the two bills is expected to begin by midweek.

In the Senate debate, critics of the plan said their main objective was to support proposals that would quickly create jobs or spur consumer spending.

But there were Republicans who vehemently opposed some spending programs in the bill, saying the federal government was overstepping its bounds and should not be getting involved in taking up local responsibilities like school construction.

Many of the education programs in the bill are top priorities of the powerful chairman of the House Appropriations Committee, Representative David R. Obey, Democrat of Wisconsin.

In debate on the Senate floor, many Republicans, including the party’s defeated presidential nominee, Senator John McCain of Arizona, offered amendments to reduce spending and broaden the tax cuts in the plan. The Democrats easily swatted those down.

Critics of the stimulus plan say Democrats have packed it not with the most effective short-term proposals to lift the economy, but with favored, liberal spending programs that will drastically increase the national debt and cause long-term fiscal harm.

“A bill that was meant to be timely, targeted and temporary has instead become a Trojan horse for pet projects and expanded government,” the Republican leader, Senator Mitch McConnell, said in a floor speech on Friday.

Although Mr. Obama made substantial efforts to reach across party lines, not one of the House Republicans voted for the stimulus measure. They complained that House Democrats shut them out of the process.

In the Senate, too, talks proved excruciatingly difficult. In the end, the only Republicans whose support the Democrats won were Mr. Specter, Ms. Collins and Senator Olympia J. Snowe of Maine.