Partisanship Creeps Back into Politics

Bush and lawmakers tangle over the shape of the stimulus plan

In the mood of war-time resolve that has prevailed in Washington since the September 11 terror attacks, Republicans and Democrats have put partisanship aside to forge consensus on issues ranging from funding for the Pentagon to a bailout of the airline industry. Now the supreme test of this spirit of cooperation is at hand. Congress and the Administration have spent weeks trying to craft a stimulus package for the U.S., and with consumer confidence flagging and the economy contracting, both would like to complete a plan within the next month. But as of Oct. 10, progress was stalling.

Sure, President Bush has signaled his willingness to accept up to $75 billion in new anti-recession incentives. And the broad outlines of a deal have been reached. It will include tax breaks for both business investment and individuals, as well as aid for those who have lost their jobs.

But key details remain unsettled, and efforts to produce a package have been slowed by intraparty disputes and ideological differences among Democrats and Republicans. The main sticking points: How much assistance should Washington give to the working poor, what tax breaks should be provided to spur new business investment, and how much spending should be included in a package that Bush wants focused on tax cuts. "The veneer of bipartisanship is not likely to stand up when you get into these kinds of issues," says Harry L. Gutman, partner with accountants KPMG LLP in Washington. Finding answers "will be contentious and not likely to happen real fast."

HIT FROM BOTH SIDES. One complication is that Bush is under pressure from all fronts. Conservatives are furious that the White House has missed the chance to cut both capital gains taxes and corporate tax rates. Reacting to the thunder on the Right, Bush has embraced another supply-side initiative--to accelerate individual rate cuts scheduled for 2004 and beyond. But that idea has been blasted by Democrats as an ineffective stimulus, since they believe upper-bracket taxpayers are unlikely to spend much of their windfall.

The complaints aren't just from Bush's right. Having acquiesced to big increases in Pentagon spending, Democrats are unwilling to embrace a stimulus plan that they feel is weighted heavily toward business and upper-income groups. They'll accept business tax breaks, but only if they are packaged with new spending for dislocated workers. "We have soldiers in harm's way. You're not going to see the kind of pettiness that existed prior to September 11," says Senator Byron L. Dorgan (D-N.D.). "But that doesn't mean we won't be aggressive."

While Bush, too, has publicly toughened his stance on the tax cuts, congressional negotiators say he still seems to be trying to keep the post-September 11 bipartisan coalition from breaking up. Although his soaring popularity as Commander in Chief gives him powerful leverage over negotiations, so far at least, he has been reluctant to cram a bill through Congress.

In private meetings between Treasury Secretary Paul H. O'Neill and key lawmakers, and in Bush's own weekly breakfasts with the Hill leadership, as recently as Oct. 10, the White House has agreed to include several key Democratic demands. Bush has proposed a modest expansion of unemployment benefits, although Democrats say it is not enough. And he has accepted the Democratic idea that the working poor should get new tax relief, probably in the form of additional tax rebates.

Top Senate aides hoped to get a specific plan on the negotiating table by Oct. 12. But at midweek, key issues remained unresolved. Negotiators had not decided whether upper-bracket taxpayers should get additional relief. And they had not agreed on how generous new business incentives should be. The White House favors a plan that would give businesses an immediate new tax write-off for equipment purchases. But Democrats want to hold down the cost of such a plan by curbing the amount of the write-off and limiting it to investments made only over the next year or so.

RATE TRIM. Then there's the dispute over how much spending should be folded into the plan. Democrats want at least $15 billion for everything from roads to mass transit. And some Hill Republicans are pushing pet projects of their own, from dams to gas pipelines. Bush remains firmly opposed to a big new infrastructure spending program. But some new money will probably be included in a stimulus package as the price of congressional support.

Elsewhere, though, there are signs of movement. House Ways & Means Committee Chairman William H. Thomas (R-Calif.) was planning on introducing his own bill by Oct. 12. And a group of GOP senators has suggested one way to settle the dispute over speeding up the rate reductions: Trim just one rate right away. The old 28% tax bracket dropped to 27% as of July 1 for couples with taxable income between $45,200 and $109,250, and is set to dip to 26% in 2004. The plan offered by senior Senate Republicans including Trent Lott (R-Miss.), Charles E. Grassley (R-Iowa), and Pete V. Domenici (R-N.M.) would drop the rate to 26% right away, but leave other rates untouched.

Such legislative finessing will continue as the clock keeps ticking--and business and the public grow increasingly frustrated with the slow pace of talks. But with public support for a stimulus package strong, Bush and Congress know they need to get a deal done, and get it done quickly.

By Howard Gleckman, with Lorraine Woellert in Washington

— With assistance by Lorraine Woellert

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