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Stimulus Update: Senate Set To Pass Stimulus Bill

Obama seeks quick action by Congress in "our winter of hardship"

Despite his broad popularity with the electorate and his mandate for change, President Obama continues to face a tough battle to persuade Congress to abandon its pattern of partisan wrangling and pass an $800 billion economic stimulus plan to reverse the nation’s tailspin.

On Monday, the Senate agreed by a razor-thin margin to end debate and move ahead towards final passage of a recovery plan now estimated to cost $838 billion.

As expected, only three moderate Republican joined the 58 Democratic Senators to advance the measure.

The Senate is expected to pass its own version of the stimulus bill today, setting the stage for negotiations with the House which could prove contentious and deeply acrimonious. Optimists contend that a final measure could go back to both houses by Friday.

It may be difficult for liberal House Democrats to reconcile themselves to a measure that slashes $98 million on school nutrition, $3.5 billion on school construction, $40 billion in payments to state and local governments, and $5 billion in health insurance for unemployed workers from a package that they approved Jan. 28.

Amid disturbing new evidence documenting the accelerating pace of job losses, the president traveled to Indiana on Monday to rally public support for his jobs plan. Later, in a nationally televised press conference he said the final measure must save or create four million jobs.

“The plan that ultimately emerges from Congress must be big enough and bold enough to meet the size of the economic challenges that we face right now,” Obama said.

Without directly saying so, Obama at his press conference seemed to express preference for the House bill, highlighting investments on education, energy efficiency and bringing electronic recordkeeping to medicine—measures that are not included in the Senate version—as key components of the sort of recovery plan he wants to sign.

“Why wouldn't we want to build state-of-the-art schools with science labs that are teaching our kids the skills they need for the 21st century, that will enhance our economy and, by the way, right now will create jobs?” Obama asked.

And Democrat Lynn Woolsey of California, a close ally of Speaker Nancy Pelosi, described herself as “quite dissatisfied” with Senate changes that eliminate spending on “soft infrastructure” like education, health care and energy reform in favor of more tax credits.

Of special interest to older Americans, however, the Senate bill does offer $17 billion to provide one-time payments of $300 to Social Security recipients, poor people who receive Supplemental Security Income and veterans receiving disability and pensions. The House bill allocates only $4 billion to the needy elderly and the disabled.

Rep. Barney Frank of Massachusetts, the Democratic chairman of the House Financial Services Committee, warned that reductions in state spending in the Senate bill would severely damage local communities. “To get any Republicans at all, you had to adopt a cut that’s going to mean policemen and firemen are going to be laid off,” he said yesterday on Meet the Press.

But Republican Mike Pence of Indiana dismissed the House-passed stimulus bill as “a tired old wish list of liberal spending priorities. …The only thing this bill’s going to stimulate is more government and more debt.”

The Senate bill features about $100 billion more in tax cuts and less spending on aid to states and on education. To woo the three moderate Republican votes needed to ensure the bill’s smooth passage, the Senate bill instead offers $11.5 billion for mass transit; a sales tax and interest payments deduction for new car-buyers, which could save $1,500 on a $25,000 vehicle; and a $35.5 billion home mortgage credit for new-home buyers (up to $15,000 per individual). Yet, even the sponsor of the mortgage credit, Sen. Johnny Isakson (R-Ga.), a real estate broker, has not agreed to support the final bill. Nor has Sen. Judd Gregg, the New Hampshire Republican that Obama nominated to be his Commerce secretary.

Republican members have also insisted on including a $70 billion amendment that “fixes” the alternative minimum tax (AMT) so that 24 million Americans won’t have to pay it. Democrats prefer to see AMT changes addressed during the regular debate on the budget later in the session.

During a rare Saturday debate on the Senate floor Feb. 7, Republicans continued to insist tax cuts that put money in consumers’ pockets will be the best way to boost economic growth. Too much government spending will crowd out private investment, argued Jon Kyl of Arizona, the second-ranking Republican, who likened the spurt of spending to a “sugar high” that will only trigger a subsequent letdown.

But Massachusetts Democrat John Kerry responded that “our number one priority is to put people back to work.”

The shaky state of employment was underlined by a jobs report released Feb. 6 that showed that 598,000 jobs disappeared in January, while the unemployment rate surged to a 16-year high. The Bureau of Labor Statistics estimated that over the past 12 months, the number of unemployed persons has increased by 4.1 million. Lisa Lynch, dean of the Heller School of Business at Brandeis University, said there’s little evidence to think the U.S. economy had hit bottom and was ready to turn the corner.

So eager was Obama to get a stimulus bill enacted that he invited congressional leaders to start drafting a recovery measure long before he was sworn in on Jan. 20—something that a sitting president would usually do. That may have been where his political problems began.

Despite Obama’s hopes for broad bipartisan support, the House bill, which allocates more in direct government spending and less in tax cuts, failed to attract a single GOP vote. And in the Senate, even though Democrats have a 58-vote majority, they still need 60 votes to block a GOP filibuster and advance the bill to a final vote tomorrow.

Meanwhile, little in the stimulus bill will address the collapsed credit markets and the continued unwillingness of banks, buried under the weight of failed mortgages, to expand their loan portfolios. A separate plan to resuscitate lending and credit will be unveiled today by Treasury Secretary Timothy Geithner.


Michael Zielenziger writes on business and the economy. He lives in Oakland, Calif.

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