Lawmakers, Bush Face Test Over Economy

A house in Denver joins the swelling ranks of foreclosures. The subprime mortgage crisis, poor job growth, higher unemployment and an expanding trade deficit have spurred fears of recession.
A house in Denver joins the swelling ranks of foreclosures. The subprime mortgage crisis, poor job growth, higher unemployment and an expanding trade deficit have spurred fears of recession. (By David Zalubowski -- Associated Press)
By Peter Baker
Washington Post Staff Writer
Monday, January 14, 2008

After a year of bitter wrangling and partisan gridlock, President Bush and Democratic congressional leaders vowed before the holidays to try to work more closely in the new year. Now, with economic anxiety on the rise and experts warning of recession, the two sides face the first test of that commitment as they search for a way to jump-start the economy.

The White House and Congress are separately crafting economic stimulus packages that they are likely to unveil within the next two weeks. Both are looking at some form of tax rebate to pump money into the economy, but they differ on what else should be included. Bush is considering a one-time business tax break to encourage investment, while Democrats are focused on additional spending to help those struggling the most.

Recognizing the rising public concern registered in polls, the two sides have been maneuvering to seize the high ground on the issue, while the fiercely competitive presidential race adds challenges to the prospect of a bipartisan accord. Yet the ominous economic indicators have spooked Washington, and politicians across the board have an incentive to make this issue the exception to the political wars that have raged since Democrats took control of Congress last January.

"We're not where the administration wants to be, but this is something people want to get done," said House Financial Services Committee Chairman Barney Frank (D-Mass.), who is helping to develop the Democratic package. "Sometimes people get political. But this is fairly serious. We want to stave off a recession or something that feels like a recession."

White House spokesman Tony Fratto, noting that Bush has not decided whether to move forward with a stimulus package, nonetheless held out hope for conciliation if he does. "If an economic growth package is something the president decides to do, I don't see any reason why it would need to be a partisan battle," he said. "In fact, there's no reason it can't be a bipartisan effort."

That optimism, however, belies the political history of the past year. Although the White House and Congress reached accommodation on a major energy bill at the end of the year, they failed over the preceding 12 months to agree on the Iraq war, illegal immigration, health care, education, warrantless eavesdropping or stem cell research. Bush vetoed seven bills in 2007, compared with the one veto he issued in his first six years in office when Republicans controlled Congress.

In those rare instances when the White House and Congress did come together on a major issue, they did so only after months of hard-nosed negotiations and tactics. But if an economic stimulus package is to be meaningful, there is no time for such a drawn-out battle. Frank said the two sides would need to agree on the broad outlines of a plan by early February and pass it by the end of that month.

"Six months from now is too late; three months from now may be too late," said Jacob Hacker, a Yale University professor who studies the intersection of politics and economics. But he doubted Bush and Congress would come together. "We can pretty much assume it's going to be a fight. We can expect another mess."

Others called the stimulus package an early indicator of whether Bush and Congress will get anything done during the president's final year in office. "This may well set the tone for the coming year for Congress and the White House," said Rep. Carolyn B. Maloney (D-N.Y.).

The economy has vaulted to the top of Washington's priority list amid a succession of foreboding developments. On top of the subprime mortgage crisis, job growth has slowed to a virtual standstill, unemployment has risen to 5 percent, oil briefly reached $100 a barrel, the trade deficit hit a 14-month high and consumer confidence fell.

Economists such as former Federal Reserve chairman Alan Greenspan and former Treasury secretary Lawrence H. Summers warn the nation may be teetering toward recession. Bush and his aides argue the economy remains fundamentally in good shape but agree there are "mixed signals" that may justify a stimulus package.

The political impact was plain last week in New Hampshire as exit polls showed the economy is now the top issue for both Republican and Democratic voters. The days since the primary have seen candidates rushing to address those anxieties. Former New York mayor Rudolph W. Giuliani (R) last week unveiled a big tax-cutting plan, and Sen. Hillary Rodham Clinton (D-N.Y.) outlined a package of spending and rebates up to $110 billion. Sen. Barack Obama (D-Ill.) followed with his own stimulus plan yesterday worth up to $120 billion.

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