Democrats Finishing Up Stimulus Proposal

House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Harry M. Reid (D-Nev.) discuss the economic recovery plan on Capitol Hill.
House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Harry M. Reid (D-Nev.) discuss the economic recovery plan on Capitol Hill. (By Alex Wong -- Getty Images)
By Paul Kane
Washington Post Staff Writer
Thursday, January 15, 2009

Congressional Democrats are putting the final touches on an economic stimulus package worth almost $850 billion, hoping to have the details ready in time for President-elect Barack Obama to promote it during a trip to Ohio tomorrow aimed at building public support for the recovery plan.

With its cost estimate almost tripling since shortly after Obama's November election victory, the stimulus package is expected to include at least $300 billion in tax cuts and nearly $550 billion in domestic spending, making the price tag of his first major legislative initiative almost equal to the annual cost of funding all federal agencies.

Democrats vowed to support the broad outlines of Obama's initial ideas, but they continued to alter the details of the plan. Support continued to slip for his tax-relief proposals for businesses -- which were initially intended to appeal to Republicans -- and preliminary spending plans showed that more than half of the new domestic spending would go to the states to provide budget relief for health, labor and education services.

House Speaker Nancy Pelosi (D-Calif.) told reporters that she hoped to announce the plan today and have her committee chairmen take up the tax and spending packages late next week, with the goal of sending the new president a final bill for his signature by mid-February.

Obama plans to tout the stimulus proposal tomorrow at a wind-turbine manufacturer in Bedford Heights, Ohio. The destination is steeped in symbolism both politically (Ohio provided critical support to the Democrat in the general election) and for its policy significance, because Obama and Pelosi have deemed renewable energy funding a hallmark of the stimulus plan.

On Tuesday, Obama attended the weekly luncheon of Senate Democrats and mounted a strong defense of his plan to include $300 billion in tax cuts in the proposal. "We can't do it all with spending. We have to have tax cuts," he told Democrats, according to Sen. Joseph I. Lieberman (I-Conn.), who supports the plan.

But the form of Obama's proposed tax cuts has come under steady fire from congressional Democrats as they put their own cast on the legislation. First, they objected to a proposed $3,000 tax credit for businesses that saved or created a job, which many considered too ambiguous to implement. Now, House Democrats are pushing to eliminate a provision that would allow businesses to write off current losses on taxes paid as long as five years ago, which would have provided an immediate cash windfall to those companies. Senate Democrats favor, at a minimum, exempting from that plan financial institutions that have already received cash infusions from the earlier $700 billion rescue plan from that tax break.

In place of those business credits, Democrats expect to include a "patch" for the alternative minimum tax, a provision meant to prevent upper-middle-class wage earners from moving into a higher tax bracket. The AMT was designed 40 years ago to ensure that the wealthiest Americans were not able to shelter their earnings from the Internal Revenue Service.

Estimates peg the cost of this year's AMT fix at $70 billion, if not more, and congressional leaders and key members of the tax-writing Senate Finance and House Ways and Means committees would prefer to deal with it now rather than make it part of an end-of-the-session crush, as has happened in recent years. Rep. Charles B. Rangel (D-N.Y.), the Ways and Means chairman, said yesterday that plans for including the AMT provision in the final legislation sent to Obama are "more than tentative."

The additions to the legislation have caused Democratic budget hawks to warn that the bill may include too many programs that are not intended to produce jobs -- Obama's goal for the plan -- and could inflate the nation's $1.2 trillion deficit. Rep. Jim Cooper (D-Tenn.), who opposes the AMT patch unless tax increases or spending cuts are included to pay for it, said the tax provision has "no emergency associated with it" and argued that leaders are using the recession to avoid a fight on a touchy subject.

"I'm not aware of the AMT [fix] having any stimulative effect," said Cooper, a member of the Blue Dog Coalition, a group of 51 fiscally conservative Democrats.

In the Senate, Sen. Charles E. Schumer (D-N.Y.) has won support for a college tuition tax credit that could cost more than $10 billion.

The House and Senate plans are likely to vary slightly, requiring a conference committee to iron out the differences in early February, if both chambers approve the measure as expected. The House hopes to vote on the legislation in the last week of January, with the Senate beginning deliberations the first week of February.

Yesterday, Democrats on the House Appropriations Committee privately reviewed the spending plan, which sources said includes $80 billion in funding to states for education programs and about $90 billion for Medicaid assistance. The proposal also includes about $85 billion worth of infrastructure spending, most for highway and bridge construction. It would also increase funding for unemployment insurance and food stamp programs.

More than half of the spending program probably would be routed through state governments, then to municipalities and local authorities, said Rep. James P. Moran Jr. (D-Va.), an appropriator.

Mayors had wanted the bulk of the money sent directly to them. But lawmakers, forbidden from designating "earmarks" in the spending plan, determined that routing the money to governors would make sure it is awarded based on need.

"To get it distributed equitably and immediately, much of it has to first go through the governors," Moran said.

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