By Jonathan Weisman and Peter Baker
Washington Post Staff Writers
Friday, January 25, 2008
House leaders and the Bush administration reached agreement yesterday on a $150 billion economic stimulus package that would quickly send hundreds of dollars to poor and middle-class workers while offering businesses one-time incentives to invest in new equipment.
The deal, announced by House leaders and President Bush after arduous, late-night negotiations, was a work of difficult compromise, and the fight will continue in the Senate. House Speaker Nancy Pelosi (D-Calif.) acceded to Republican demands, jettisoning plans to extend unemployment benefits and food stamps for now but concluding that the issue could be revisited if the economy continues to slide.
"I can't say that I'm totally pleased with the package, but I do know that it will help stimulate the economy," Pelosi said. "And if it does not, then there will be more to come."
House Minority Leader John A. Boehner (R-Ohio) agreed to offer $28 billion in cash payments to 35 million working families that earn too little to pay income tax, an idea that GOP leaders had roundly rejected in past stimulus plans.
"This was not easy," he allowed.
In return, however, the deal includes provisions from Boehner that would allow faster tax write-offs for corporate investment and immediate tax deductions for small-business investment in plants and equipment.
"This package has the right set of policies and is the right size," Bush said in the White House briefing room. In particular, he expressed satisfaction that it was built entirely on tax breaks.
Whether the measure actually will stabilize a jittery economy was the subject of debate, however. Bernard Baumohl, managing director of the Economic Outlook Group, said the package -- and the emergence of brief bipartisan comity after so many months of partisan infighting -- would have a positive psychological impact on markets and investors.
But he cautioned: "Practically speaking, this plan is not expected to have any meaningful impact on the economy until much later this year, perhaps in the fourth quarter. Even then, it's unlikely we'll see more than an extra blip in GDP growth."
Under the deal, nearly everyone who earned a paycheck in 2007 would receive at least $300 from the Internal Revenue Service -- $103 billion in total. Most people would receive rebates of $600 each, or $1,200 per couple. Families with children would receive an additional payment of $300 per child. Workers who earned at least $3,000 last year -- but not enough to pay income taxes -- would be eligible for $300.
Overall, 117 million families would receive rebate checks, including 35 million with earnings too low to have qualified under an earlier Bush proposal that limited checks to income tax payers. Rebates would be limited, however, to single taxpayers with adjusted gross income up to $75,000 -- up to $150,000 for couples. Above that, the benefit would phase out until hitting zero for individuals with adjusted income of about $87,000, $174,000 for couples.
The money would be borrowed and would increase the federal deficit.
To address the underlying economic issue of the housing slump, the deal would expand the Federal Housing Administration's ability to insure higher-priced mortgages and to help homeowners threatened by foreclosure renegotiate their loans without sharp increases in their payments.
The package would temporarily increase the size of "jumbo" mortgages that can be bought by government-sponsored Fannie Mae and Freddie Mac, from $417,000 to as much as $729,750 in high-cost housing markets.
Treasury Secretary Henry M. Paulson Jr. said the first checks and electronic payments could begin flowing "within roughly 60 days" of Bush signing a package into law, with most of the payments in workers' pockets within 10 weeks of the first payouts. Even the accelerated timetable he outlined would not put money in people's hands until May.
But Paulson conceded that the deal may be far from final passage. Pelosi dropped some key demands in order to keep it tilted toward the middle class and to include the working poor. In addition to the extensions of unemployment and food stamp benefits, she set aside proposed funding increases for low-income heating assistance and aid to state and local governments in the form of Medicaid assistance or infrastructure spending.
Those concessions prompted loud protests, especially from House Ways and Means Committee Chairman Charles B. Rangel (D-N.Y.), who argued with Pelosi deep into Wednesday night. Senate Democrats quickly vowed to add to the House compromise.
"The Senate will want to speak as well," Senate Finance Committee Chairman Max Baucus (D-Mont.) said yesterday morning as he announced that his committee will draft its own stimulus bill next week.
Baucus said he would like to increase the size of tax payments for the working poor and restore unemployment benefit extensions dropped by Pelosi and Boehner. Sen. Ron Wyden (D-Ore.) promised to secure funds for infrastructure projects. Sen. Patty Murray (D-Wash.) said she will push funding for youth summer job programs. Sen. Patrick J. Leahy (D-Vt.) demanded food stamp funds.
The House package "is aimed as it should be, a bull's-eye right on the middle class," said Sen. Charles E. Schumer (D-N.Y.). "But now we have to work on the bookends."
Paulson, however, cautioned against slowing down the process: "The American people are not going to have a lot of patience for taking time."
In reaching agreement so quickly, House leaders were motivated not only by economic turmoil but also by angry voters who think Washington has lost the ability to compromise and who give Congress rock-bottom approval ratings.
The deal came together during a marathon day of meetings, telephone calls and consultations. Paulson, Pelosi and Boehner met over breakfast at 7 a.m. Wednesday. All three liked the idea of tax breaks for individuals and families, and Boehner agreed with Pelosi on adding child tax credits. But the key sticking point was who would be eligible for rebates.
The breakthrough came when the three reconvened at 2 p.m. and Boehner said he would give in on sending checks to those who do not pay income taxes if the Democrats would take all spending proposals off the table, according to an administration official. Boehner argued that such a plan would help the poorest Americans whom Democrats were trying to aid via unemployment checks and food stamps.
Pelosi "was intrigued with it the minute he said it," the official said, and she took the idea back to Democrats. The three negotiators reconvened at 7 p.m., and Pelosi accepted Boehner's suggestion.
Then it became a matter of making the numbers fit the concepts. The negotiators initially talked about a $200 credit per child, but Pelosi wanted it to be $300, raising the cost of that part of the package from $12 billion to $18 billion. By reserving the breaks for low- and moderate-income workers, they kept the consumer tax breaks to $103 billion.
The compromise courts a backlash from the rank and file of both parties. Rep. Louie Gohmert (R-Tex.), denounced any deal that sends checks to workers who do not pay income taxes. "In order to get a rebate, you've got to put some bait in," he said.
Democratic presidential hopefuls greeted the agreement tepidly.
"I am heartened to hear that they are planning to extend assistance to the tens of millions of working Americans who need it the most," said Sen. Hillary Rodham Clinton (N.Y.). "But I also want to target the needs of working families that are really facing tough choices. We need relief from skyrocketing energy bills. We need expanded unemployment insurance for those who are struggling to find a job."
Sen. Barack Obama (Ill.), whose own stimulus plan centers on tax rebates and payments, singled out low-income seniors. Under the compromise, retirees whose income from retirement plans and Social Security is not enough to qualify them for income taxes would receive nothing.