Jan. 24 (Bloomberg) -- Don't tell anyone, but Democrats and Republicans are threatening to work together to deal with a major economic issue -- a stimulus package -- just when you least expect it.

To its credit, the Bush administration has played it pretty straight so far. In 2001 and 2003, the administration used the need for short-term stimulus as a ploy to justify long-term tax cuts for the well-off that would ignore all rules of fiscal discipline. If adopted permanently, these cuts would increase the U.S. national debt by $1 trillion over the next decade.

But things are different this time.

Perhaps it's because a former Bush economic adviser, Federal Reserve Chairman Ben Bernanke -- who led the Fed to the biggest one-shot interest-rate cut ever earlier this week -- has been reinforcing Democrats' calls for any stimulus to be short-term and not cause a big increase in long-term deficits.

Or maybe it's due to the leadership of Treasury Secretary Henry Paulson, who embraced the Democratic stance in saying the stimulus ``should be temporary so that it doesn't impact our long-term fiscal position'' when he laid out the administration's plans.

The Democratic side, led by House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid, has shown economic statesmanship by making it clear that politics and confrontation should be put aside in order to pass a proposal with support of Congress and the administration.

Will lowered tensions lead to a bipartisan agreement? There is no reason it can't. It will require some flexibility by the Democratic leadership and willingness by the president to recognize holes in his proposal.

Bush Plan

President George W. Bush has said he isn't putting out details yet, but the administration already has leaked its plan. It has a significant business-tax cut and temporary suspensions of the 10 percent income-tax bracket, which for those making enough money might mean an $800 rebate for an individual and $1,600 per family.

Democrats have pointed to three primary problems with this plan.

First, the Bush proposal is undercut by an ideological decision to exclude government spending. This hard line makes little sense, since almost all economists say that well-designed spending injects more of each dollar into economic demand, helping unemployed people, low-income seniors facing huge energy bills, and communities reeling from foreclosures.

Two, Democrats are wary of Bush's proposal for business-tax cuts, especially after analysis by the Congressional Budget Office cast doubt on the effectiveness of these reductions in the last recession.

Bridging Differences

Three, the Bush administration rebate proposal provides nothing to 29.7 million American households and it short-changes an additional 18.9 million low-income working people who are subject to payroll taxes but don't pay enough in income taxes to get the full rebate. A family of four making less than $25,000 would get nothing; a family of four earning less than $41,000 gets less than the full amount.

Can these differences be overcome? Democrats should go along with the most-effective business-tax cuts, such as a front-loaded investment tax credit. In exchange, the administration should accept the most-effective spending measures to deal with economic hardship and the fallout from the housing crisis.

And on the rebates, serious and fair-minded people in the Bush administration, such as Paulson, have to ask themselves: Is there really a moral or economic justification for leaving out tens of millions of hard-pressed American households?

Rebate Goal

If the goal of a rebate is, as Paulson says, ``a plan that gets cash to consumers,'' why exclude an elderly widow on a low fixed income who is being hit by soaring prices? And even if the president wants to limit his stimulus plans to, as Paulson says, ``broad-based tax relief for those who are paying taxes,'' why make income taxes -- as opposed to payroll or sales levies -- the sole determinant for getting relief?

Why would we want a single parent -- say, a waitress in Atlantic City, New Jersey, where the average pay is $21,900 a year -- to get nothing, while a more-affluent family she serves food to gets $1,600? Why would we want to allocate $150 billion for a stimulus and give almost nothing to the typical firefighter in Youngstown, Ohio, who makes $24,420? Why would we want to exclude any of the Americans with disabilities who are working to support a family, but too often don't make $25,000 a year?

There are many ways you can redesign the tax rebate to get around this. An idea being floated by some in the congressional leadership, as well as by Jason Furman of the Brookings Institution's Hamilton Project, suggests you can offer rebates based on payroll taxes that take into account family size. This might provide more than Bush's plan to a family of four, and cover most of the 50 million to 70 million households that would either get nothing or only partial rebates.

If the administration can bring these families into its stimulus proposal, there is a very good chance they can bring the Democratic leadership into a bipartisan agreement.

(Gene Sperling, author of ``The Pro-Growth Progressive,'' was President Bill Clinton's top economic adviser. He is a senior fellow at the Center for American Progress and is advising Hillary Clinton in her bid for the 2008 presidential nomination.)

To contact the writer of this column: Gene Sperling in Washington at gsperling@cfr.org

Last Updated: January 24, 2008 01:30 EST