Commentary: A Stimulus Deal Is Closer Than It Seems

To listen to the overheated rhetoric in Washington, it sounds as if the economic stimulus plan could founder on the rocks of old-fashioned partisanship. Democrats are loudly demanding big new spending programs, while Republicans are playing to their loyalists by insisting on huge tax cuts. The GOP rammed its version through the House on Oct. 24 on a nearly party-line vote. In the Senate, competing plans appear daily. And on Oct. 31, a frustrated President Bush called on Congress to pass a stimulus by the end of November: "Get to work and get something done," he said.

Yet in reality, the parties are much closer to a consensus than their speeches suggest. Says Iowa's Charles E. Grassley, senior Republican on the Senate Finance Committee: "I don't think we are any farther apart than we were last spring"--when Congress easily passed President Bush's tax cut. Adds Senator John B. Breaux (D-La.): "The differences are not insurmountable."

Lawmakers have coalesced around the basic elements of a $75 billion-to-$100 billion plan. Its key pieces: temporary tax cuts for new business investment, including faster first-year write-offs for new equipment; tax cuts for low-income workers who didn't get rebates earlier this year; and extra benefits for workers who have lost their jobs recently. Economists say these elements would have a small but positive impact on consumption and capital spending.

STICKING POINTS. Still, the political slow-dancing over key details may continue for weeks. There are three big sticking points. The first: how much to spend on public works. Democrats favor $20 billion for roads, bridges, and transit, while Bush opposes any new funding. The Hill GOP publicly backs Bush, but privately many lawmakers also want to fund local projects. The likely compromise: at least $10 billion in added spending. It won't help today's economy much, though, because actual digging wouldn't begin for at least a year.

Lawmakers will also have to find a middle ground on a GOP plan to accelerate the individual rate reductions that were enacted last spring, but are not scheduled to kick in until 2004 or 2006. Republicans want them now. "It's the Holy Grail for the R's, and it's a nonstarter for us," says a Senate Democratic aide. The deal? An immediate cut in only the 27% tax bracket that would give middle-income workers a few extra dollars.

The third battle will be over how to help laid-off workers who have lost health insurance. Today, businesses must offer coverage to ex-employees for 18 months, though workers must pay up to 103% of their premiums. Since that's prohibitive for many, Democrats and some moderate Republicans want Washington to temporarily defray 50% to 75% of the cost. Bush and most Hill Republicans oppose a subsidy but would give states money to help the unemployed obtain insurance. This issue has stalled congressional negotiations for weeks and no deal is on the horizon.

It seems clear, though, that many of the controversial provisions in the House bill will be jettisoned. For instance, while Congress is likely to give companies some relief from the alternative minimum tax, it won't give them a $25 billion rebate for the AMT taxes they've paid over the past 15 years, as the House did.

FRUSTRATION. On other issues, lawmakers are likely to split the differences. For instance, the House would let businesses enjoy new investment incentives for three years. Senate Finance Committee Chairman Max S. Baucus (D-Mont.) prefers one year. The easy compromise: 18 months. When it comes to the big issues, says Clint Stretch, a Washington partner at accountants Deloitte & Touche, "they are all singing from the same song sheet."

Perhaps, but the last act of this drama is taking longer than frustrated Administration officials would like. To close the deal, the President will have to do some compromising. And he'll have to lean harder on lawmakers to stop their demagoguery and start putting economic recovery ahead of politics.

By Howard Gleckman

With Rich Miller in Washington

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