Stimulus: Now the Real Action Begins

Now that the House of Representatives has passed its $819 billion economic stimulus bill—by a vote of 244 to 188 and with no Republican support at all—the negotiations can really begin.

The White House-backed legislation includes an estimated $544 billion in federal spending and $275 billion in tax cuts for individuals and businesses. The nearly party-line victory on Jan. 28 clashes with President Barack Obama's near-promise that he would deliver apolitical legislation with strong bipartisan support. But now the focus turns to the Senate and its more collegial atmosphere, where lawmakers have already begun to incorporate or compromise on several GOP proposals.

The vote came the same day Obama held a high-profile meeting with corporate leaders, billed as gathering their thoughts on the stimulus package but serving equally to gain their support for the Administration's efforts. That will be critical in helping win over reluctant Republicans as the Administration heads into final negotiations for the package: White House officials are counting on a heavy lobbying push from the business community to win broader support, and the meeting appeared to move them a step closer to that goal.

"It's important that business and government come together to help the President get this package through," Samuel J. Palmisano, the CEO of IBM (IBM), said in introductory remarks. "And then we've got to get down to work."

Ineffective Tax Breaks for Business?

Executives who attended the meeting said they were heartened by the President's interest in their concerns; each had roughly five minutes to talk about the economy and raise critical issues as the President moved around the room and probed them with questions. "We had an opportunity to let him know the key issues on our minds," says John Bryson, the recently retired CEO of power company Edison International (EIX). "There was a great sense of urgency, a feeling that we can't let the perfect be the enemy of the good in getting the measure passed."

The extended discussion also helped ease concerns some in the business community have had about the size and makeup of the package.

One issue that arose, says Bryson: worries that tax breaks in the bill as it was taking shape in Congress would do too little for businesses racking up losses and individuals with declining or no income. "So many people and businesses now can't use tax incentives because they have no taxable income," he said.

Obama praised the House bill's passage in a statement soon afterward, stressing the need for Congress to move quickly and not mentioning the lopsided vote.

"I hope we can continue to strengthen this plan before it gets to my desk," Obama said. "But what we can't do is drag our feet or allow the same partisan differences to get in our way. We must move swiftly and boldly to put Americans back to work, and that is exactly what this plan begins to do."

Senate Needs GOP Support

A version of the stimulus bill had already begun moving through the Senate, where a number of compromises with the Republican minority have swelled it to nearly $900 billion. More compromises are likely—as are a string of amendments with potentially far-reaching effects for U.S. businesses if adopted.

A variety of factors are likely to give the Senate bill more weight when the two chambers sit down to negotiate the final legislation.

For one thing, there's that strongly partisan House vote, with none of the GOP support that President Obama has said he wants. Senate Majority Leader Harry Reid (D-Nev.) can't count on a similar party-line vote—he needs at least two Republicans to avoid a filibuster, and the more consensus-driven Senate generally gives compromise an edge over confrontation.

Once the House and Senate merge their bills, moreover, GOP support will remain important to get the final measure through the Senate—and give Obama a bipartisan vote.

What's in the Senate Bill

"The real work is going to get done in the Senate," says Daniel Clifton, a Washington policy analyst at Strategas Research. "Two hundred and forty-four is a very low number—this gives the Senate leverage in negotiations with the House-Senate conference when the two bills need to be reconciled."

The Senate bill already includes a one-year "patch" for the Alternative Minimum Tax, which was originally established to keep wealthy Americans from avoiding income tax altogether but which increasingly hits middle-income taxpayers because it hasn't been indexed for inflation. Analysts say the measure won't do much to stimulate the economy, largely because it simply extends a fix that has been in place for years, but the provision has strong support among Republicans.

Among the business provisions that could be tacked on in the Senate: a temporary reduction in the tax rate levied on companies bringing foreign-subsidiary profits back to the U.S. While it's a big hit with Big Business—supporters say the move encourages companies to reinvest domestically instead of overseas—critics say the tax reduction does little more than reward companies for moving jobs elsewhere.

Democrats Divided

The proposal has historically run into strong opposition from Democrats, including, in the past, Obama. But that resolve may be weakening. Senator Barbara Boxer (D-Calif.), who co-sponsored a similar 2004 provision but had been cool to the idea as Democratic opposition strengthened, has said she will back the measure. Still, fierce opposition among House Democrats could stymie the provision in the final bill.

An existing provision in the Senate bill allowing companies to spread taxes on bond buyback profits over eight years could become significantly more attractive if some of the tax is excluded altogether. Currently, companies pay ordinary income tax on any gains from buying their own bonds back below the issue price. The big winners under the change: hedge funds and private equity and financial firms.

Business groups, among others, continue to lobby furiously to win a piece of the big tax-cuts-and-spending bill. Although they have yet to succeed, the dairy lobby hopes to raise dairy prices by pushing for government payments to cull their cattle—killing perhaps 300,000 animals, or 3.4% of the national herd, an analyst report from Stanford Group notes.

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