CHN: Economic Stimulus Package Negotiations Continue

Democrats and Republicans Remain Divided on Approach
Lawmakers continue to negotiate an economic stimulus package they hope will boost the nation’s sagging economy. However, the bipartisanship dominating congressional action in the wake of the September 11 terrorist attacks is waning, and passage of a stimulus plan is stalled over divisions on whether the measure should favor tax cuts or spending.

Many analysts predict that the economy, which was slowing prior to the attacks, is now headed into a full-scale recession. Consumer confidence continues to falter, and the unemployment rate reached a nine-year high at the end of September, with more than 450,000 claims.

In response, Republicans are generally advocating for additional tax cuts as a means to spurring economic growth. The White House is backing a $75 billion plan weighted heavily toward tax cut measures, which include the acceleration of the individual income tax rate cuts enacted earlier this year, a repeal of the corporate alternative minimum tax, fully refunding alternative minimum tax credits, and write offs for new business equipment. President Bush is also considering $300 to $400 tax rebates for low-income workers who did not benefit from the tax package enacted in June.

Although the White House stimulus package calls for $60 billion in tax breaks – leaving just $15 billion for new spending – the nonpartisan Joint Tax Committee estimates the cost of the proposed cuts to be much higher. According to Committee, the Bush tax plan would cost between $90 billion and $120 billion in fiscal year 2002. If the proposed changes to the tax code are made permanent – as the White House and many congressional Republicans prefer – costs could reach $440 billion over 10 years.

In addition to tax cuts, President Bush’s proposal also includes a 13 week extension of unemployment benefits, but only for workers who lost their jobs after September 11, qualify for benefits under their state Unemployment Insurance program, and work in states where the jobless rate increases by 30% over pre-September 11 rates or have been declared a disaster area as a result of the attacks. According to the Center on Budget and Policy Priorities, the White House plan would reach a limited number of unemployed workers living in just 17 states.

Another measure included in the President’s economic stimulus proposal is that states use $11 billion in “surplus” State Children’s Health Insurance Program (SCHIP) funds to provide health insurance to unemployed workers. However, SCHIP is slated to be cut by 26% in fiscal year 2002, and shifting program funds to the unemployed will further deplete the resources needed to provide health insurance to the nation’s low-income children. In addition, the Administration has proposed $3 billion in special National Emergency Grants for states to provide health insurance, job training and other services. Critics of the President’s package argue that $3 billion falls far short of the total states need to provide these types of services.

In contrast to leading Republican proposals, Democrats are pushing for greater assistance to moderate and low-income Americans, and are advocating temporary rather than permanent stimulus measures. With extending worker protections at the top of the Democrats agenda since September 11, it is not surprising that their package includes a more generous expansion of the Unemployment Insurance program than Republicans are forwarding. Under the plan agreed to by the Democratic Caucus on October 11, unemployment benefits would be extended nationwide and part-time and temporary workers would be made eligible. The plan does not, however, call for an increase in the minimum benefit level, a provision members of the Progressive Caucus would like to see included.

The Democratic package would also require the federal government to cover 75% of the costs for COBRA or Medicaid health care coverage for the unemployed. In addition, the plan would allocate $3 billion for school construction, $7 billion for economic development, and $25 billion for beefing up security programs.

On the tax side, the Democratic stimulus package contains rebates for the 34 million low-income Americans who did not receive rebate checks this summer. The plan would also allow increased expensing for small businesses and permit corporations to carry losses forward into future tax years. Democrats plan to offset the costs of their package by freezing the recently enacted tax cuts for the wealthiest earners.

Despite a lack of consensus on an economic stimulus measure, congressional leaders are pushing legislation forward. House Ways and Means Chairman Bill Thomas (R-CA) scheduled an October 12 markup of a stimulus package that reflects many of President Bush’s tax cut ideas, including the rebate for low-income workers. As of this writing, the markup has not been completed. Thomas’ proposal does not include unemployment or health benefits expansions. This or similar legislation could come to the House floor for a vote next week.

On the Senate side, Democrats unsuccessfully attempted to attach aviation worker assistance provisions to the airline security bill approved by the chamber on October 11. Meanwhile, a bipartisan group of centrist Senators have been meeting to discuss a stimulus package that would target individual tax cuts to low- and moderate income Americans. These centrists are considered key to striking a bipartisan deal.

tax policy