Lawmakers, Bush Face Test Over Economy
Parties Agree on Need For Quick Fix, Little Else

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.

Among the options Bush is considering, according to officials who insisted on anonymity to discuss internal deliberations, are a tax rebate of several hundred dollars per taxpayer, probably limited to those in the middle and lower income brackets, and a "bonus depreciation" for businesses, allowing them to accelerate their deductions for equipment. Officials would not discuss the size of the package but noted that economists have said it needs to be between $50 billion and $100 billion to have an impact.

Democrats are looking at a tax rebate as well but also want new spending to ease the economic crunch. Among their ideas are extending unemployment benefits, home-heating subsidies and food stamps, and steering billions to states, which could use the money to help those caught up in the housing crisis. Democrats said they are talking about a package in the area of $100 billion.

Proposals from both sides are still in development. Bush will not make any decisions until returning from the Middle East this week and could outline any plan in his State of the Union speech Jan. 28. House and Senate Democratic aides met for the first time only last week to start discussing ideas. The Joint Economic Committee will hold a hearing Wednesday, and Senate Finance Committee Chairman Max Baucus (D-Mont.) plans to hold hearings when lawmakers return.

For now, both sides are sending signals that they want to come together to get something done. House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Harry M. Reid (D-Nev.) sent Bush a letter Friday saying they wanted to work with him on a stimulus package and asking for a meeting before either side releases proposals. Fratto, the White House spokesman, said Bush already planned to invite the leadership to the White House after returning from the Middle East, to brief them on the trip, and they could easily talk about the economy then, too.

Yet the two sides are already laying down markers. The White House says any stimulus package should not include public works projects often favored by Democratic lawmakers because such spending would not move into the economy fast enough to have any impact. Democrats said a package should be "timely, targeted and temporary," meaning Bush should not use the issue to try to make his first-term tax cuts permanent.

"If they tie this to something ideological like extending the president's tax cuts, the package will fail," Sen. Charles E. Schumer (D-N.Y.), chairman of the Joint Economic Committee, said in an interview Friday before using Saturday's weekly Democratic radio address to highlight the need for stimulus. "But certainly we know there has to be something of a give-and-take."

A senior House Democratic aide said it would not be hard to put together a compromise that would include some elements from Bush's menu and some from the Democrats'. "We may have to take some of theirs and they take some of ours to get something done," he said. "We're willing to do that. The question is whether they are."

A senior administration official said that while Bush wants to renew his tax cuts, officials understand that trying to deal with that in a stimulus package would bog it down: "If you keep it simple enough, you can get something done. If everybody puts their favorite pet project in there, you're not going to get anywhere."