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Two Views in the White House on an Economic Fix    [

    Conflicting Interests Present Hurdles to Stimulus Package
    By Jonathan Weisman and Jeffrey H. Birnbaum
    The Washington Post

    Thursday 17 January 2008

    A rush by President Bush and Democratic leaders to assemble an economic stimulus package to stave off a recession is being complicated by a potentially debilitating brew of presidential politics, ideological differences and special interest lobbying.

    Already, a bidding war among the top three Democratic candidates is complicating congressional efforts to produce a package that would not worsen the budget deficit. Republican contenders and GOP leaders are warning the White House not to compromise too much with Democrats on an economic stimulus they are not even sure is warranted.

    Meanwhile, lobbying groups for industries as varied as high technology and hotels are clogging the reception rooms and e-mail inboxes of senior lawmakers, pressuring them to include the groups' favorite benefits in a stimulus package. Small businesses are seeking to write off new equipment faster. Large businesses are appealing for lower tax rates. And home builders are pleading to offset their taxable income in years past with the losses they are suffering today.

    "This package is not going to be all things to all people," House Speaker Nancy Pelosi (D-Calif.) said yesterday, firing a warning shot to Republicans and Democrats alike while promising a proposal within two weeks. "It is not going to be a panacea."

    The debate has highlighted the gulf separating the Democratic and Republican parties on economic policy, even as K Street stokes the engine on what House Ways and Means Committee Chairman Charles B. Rangel (D-N.Y.) fears could be a runaway train. Democrats from Capitol Hill to the campaign trail are ready to spend as much as $100 billion in the coming months on tax rebates, housing assistance, unemployment benefit extensions and aid to cash-strapped states to counter a recession that they worry may already have begun.

    "The discussion of economic stimulus is no longer an academic exercise," Sen. Charles E. Schumer (D-N.Y.), chairman of the Joint Economic Committee, said at hearings yesterday. "In fact, real economic stimulus measures, enacted quickly, could be the last thing between us and a deep or protracted recession."

    Republicans are not so sure. Sen. John McCain (Ariz.), at a Republican presidential debate last week, objected to recession talk, saying the economy is merely entering a rough patch. House Republican conservatives yesterday outlined a wish list that was sharply at odds with that of the Democrats: a steep cut in the corporate income tax rate, big tax breaks for business investment and a more generous tax write-off for business losses.

    Most Republican presidential candidates are far more amenable to long-term changes in the tax code and spending that would address underlying drags on the economy rather than short-term, one-time fixes. And GOP leaders in Congress are concerned that Democrats would try to offset the cost of any stimulus package with future tax increases or loophole closures.

    "It is incumbent upon Congress not to make matters worse by raising taxes on anyone, in any way," House Republican leaders said Tuesday in a letter to their Democratic counterparts.

    But Kevin A. Hassett, an American Enterprise Institute economist advising McCain, said he is resigned to a compromise between Bush and Democratic leaders that conservatives are bound to dislike.

    On K Street, the lobbying community sees potentially lucrative possibilities in an election year that otherwise might produce little legislation. Some requests are relatively modest: The National Federation of Independent Business is calling for Congress to make it easier for home-based businesses to write off their offices. But most are substantial: The R&D Credit Coalition is seeking an extension of a multibillion-dollar tax break for corporate research. And the Travel Industry Association wants Congress to cough up tens of millions of dollars to help fund advertising abroad to lure foreign tourists and create jobs at restaurants and hotels.

    At the tax-writing Senate Finance Committee, one staffer has been charged with trying to keep track of the lobbyist appeals. So far, the list exceeds two dozen significant ideas, and it grows daily. The proposed beneficiaries, besides taxpayers, include real estate agents, physicians, automakers, pension funds, manufacturers, pipelines, insurers, and corporations small and large.

    "There are a lot of interests that have made the case for one provision or another," said Rep. Jim McCrery (La.), the top Republican on the Ways and Means Committee. The volume of requests has not yet overwhelmed him, he said, but only because "I have lots of staff."

    Democratic White House hopefuls are exerting their own pressure. Former senator John Edwards (N.C.) kicked off the bidding Dec. 22 with a $25 billion proposal of clean-energy projects, unemployment insurance extensions, aid to state governments and housing assistance.

    On Jan. 11, Sen. Hillary Rodham Clinton (N.Y.) upped the ante with a $70 billion stimulus plan that includes a $30 billion housing crisis fund, $25 billion in emergency energy assistance to poor families, $10 billion to extend and broaden unemployment insurance benefits, and $5 billion in energy-efficiency and alternative-energy spending. She would also impose a 90-day moratorium on subprime mortgage foreclosures and freeze interest rates on subprime mortgages.

    Two days later, Sen. Barack Obama (Ill.) laid out a $75 billion plan, including $45 billion in individual $250 tax rebates and Social Security supplements that would be mailed quickly to as many as 95 percent of U.S. workers. Those rebates could be doubled if the first injection did not do the trick.

    Against the wishes of many Democrats on Capitol Hill, the presidential contenders made no effort to offset the cost of their proposals with tax increases, loophole closures or spending cuts.

    "I think the most crucial tests for a stimulus package meeting our fiscal responsibility principles should be, is it fast acting, does it have high bang for the buck, and is it temporary?" said Gene Sperling, a Clinton economic adviser.

    The presidential candidates' proposals have put Democratic congressional leaders in a difficult position. Their final plan could bolster one candidate over another, depending on its shape. Asked whether they were being influenced by the competing plans, House Democratic leaders stood in awkward silence yesterday before Majority Leader Steny Hoyer (D-Md.) quipped, "When they become president, we'll work with them."

    Rather than guiding the debate on Capitol Hill, the candidates' packages have immediately become fodder for argument. Austan Goolsbee, a University of Chicago economist and Obama economic adviser, scoffed at much of the Clinton plan, saying the complexity of the proposals would delay their impact until it is too late to make a difference. By the time poor families realized they were eligible for Clinton's $25 billion in low-income heating assistance and fill out the five-to-10-page application, winter would be over, he said.

    Underscoring Clinton's contention that she has the experience to address such problems, Sperling said much of the plan grew out of lessons learned in 1993, when President Bill Clinton assembled a similar stimulus plan.

    "If you're worried you didn't come up with something first, you come up with reasons to be against it," Sperling said.

    Republican candidates have been far more circumspect in their proposals. Former Arkansas governor Mike Huckabee unveiled what he called a stimulus package this week, but it was short on details and shorter on price tags. He called for an immediate "second round of negotiations with subprime lenders with an eye toward" expanding borrower assistance. He pledged to increase defense funding by about $200 billion and boost spending on energy.

    "We will build new planes, new armed vehicles, new robotic land and air vehicles, and new ships right here in America," he said.

    More typical have been proposals from McCain, former New York mayor Rudolph W. Giuliani and former Massachusetts governor Mitt Romney, who have eschewed short-term fixes for permanent tax cuts and tax code changes that they say will boost investor confidence and bolster long-term economic growth.

    "In the end, it's far better to have economy growing fast because its tax policy makes sense," said Douglas Holtz-Eakin, a former director of the Congressional Budget Office who is now McCain's top economic adviser. "His proposals would fix the underlying issues in the economy."

    Asked whether McCain needed a stimulus plan for political purposes, Holtz-Eakin replied: "I have no instincts on politics at all. If there is a pandering expert out there somewhere, it's not me."

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    Two Views in the White House on an Economic Fix
    By Sheryl Gay Stolberg
    The New York Times

    Thursday 17 January 2008

    Washington - As President Bush weighs a stimulus package to jump-start the sagging economy, a debate has broken out inside the White House over how hard to push Congress to make Mr. Bush's tax cuts permanent - a priority for the president, but one that Democrats say would kill the plan before it is even considered.

    On one side, according to people familiar with the deliberations, is a powerful group of pragmatists, including Henry M. Paulson Jr., the treasury secretary; Joshua B. Bolten, the White House chief of staff; and Ed Gillespie, counselor to Mr. Bush. They argue that the need for a stimulus is urgent, but have expressed concern that the administration may have to scale back its ambitions for permanent tax cuts to get a package through Congress.

    On the other side, these people say, are staunch economic conservatives like Keith B. Hennessey, the new director of Mr. Bush's National Economic Council. They have reservations about the need for an economic rescue package and maintain that if the White House proposes one, it should use the plan as leverage to press lawmakers into making the tax cuts permanent.

    Mr. Bush, who has been traveling in the Middle East, has not yet received any formal recommendations from his economics team. But he is expected to make a stimulus package the centerpiece of his State of the Union address. He is due back in the Oval Office on Thursday, and is planning a conference call with Congressional leaders to solicit their views.

    The president's tax cuts, which lowered rates for individuals and investors, are set to expire at the end of 2010. Mr. Bush has said repeatedly that he will devote his last year in office to making them permanent, a vow he reiterated in a speech in Chicago before leaving for the Middle East.

    "In a time of economic uncertainty," the president said, "we ought to be sending a clear signal that taxes will remain low."

    Vice President Dick Cheney has also been a strong supporter of the tax cuts, although it is not clear what role he is playing in the current debate.

    On Wednesday, the White House dismissed any suggestion that some of the president's top advisers believed they might have to cede their ground. Tony Fratto, the deputy White House press secretary, said such reports were "flat-out wrong," though he declined to offer specifics.

    The debate casts a fresh spotlight on the White House economic team, a little-known collection of forecasters, strategists and business executives who have struggled for influence inside an administration that has long been preoccupied with terrorism and the war in Iraq.

    It is a team that has often been in flux. Mr. Bush is on his third treasury secretary, Mr. Paulson, who was wooed away from his job as chairman and chief executive of Goldman Sachs by Mr. Bolten, himself a former executive there. (The first one, Paul H. O'Neill, cooperated in a tell-all book after he left, and the second, John W. Snow, was unceremoniously pushed out the door.)

    Mr. Bush has had four National Economic Council directors; Mr. Hennessey replaced Allan B. Hubbard, an Indianapolis businessman who has known Mr. Bush since their days at Harvard Business School together. And there have been five chairmen of the Council of Economic Advisers, a group now headed by Edward P. Lazear, who is on leave from his job as a Stanford University business professor.

    In an interview Tuesday, Mr. Lazear said the president was "very firm in terms of his principles that the tax cuts need to be made permanent." And while Mr. Lazear declined to discuss the administration's strategy - his job is that of economic forecaster, not political strategist, he said - he also made clear that the White House understood the political realities it faces. "We're not doing this just to play games here," he said. "So we obviously want to propose something that we feel would do the American economy some good, and that means it has to be enacted."

    Within the current economic team, Mr. Paulson clearly wields the most clout. With his Wall Street credentials, he has Mr. Bush's ear, as well as that of some leading Congressional Democrats, including Senator Charles E. Schumer of New York. Kenneth M. Duberstein, a Republican strategist who is close to Mr. Paulson, calls him "first among equals."

    Mr. Schumer said that he has told Mr. Paulson it would "cause real problems" for the White House to insist that a stimulus package be linked to permanent tax cuts. One Republican close to the White House said he believed Mr. Paulson and the other pragmatists would ultimately persuade the administration that it would be worth making some concessions to get a rescue package through Congress.

    "They're not going to start off signaling that they're going to be flexible, but Paulson and Bolten and Gillespie know that this is going to be a negotiation," said this Republican, speaking on condition of anonymity. "Their view is a stimulus is essential and their No. 1 priority, and therefore everything else has to be negotiable to achieve the priority. It's a huge shift."

    Mr. Paulson came into the administration viewed as someone who could bridge the divide with Democrats, yet he has had some difficulty doing so. His effort to forge a bipartisan agreement to revamp Social Security never got off the ground, although he was able to nudge the administration toward a more liberal policy of helping homeowners in the subprime mortgage crisis.

    As a whole, the economics team has also drawn criticism for overly optimistic economic predictions. At the end of November, on the same day that Ben S. Bernanke, the chairman of the Federal Reserve, hinted strongly that the Fed would lower interest rates to stave off a downturn in the economy, Mr. Paulson and Mr. Lazear offered a rosier economic forecast for 2008.

    Mr. Lazear predicted "solid growth," and Mr. Paulson said the economy remained "broadly healthy," while adding, "I expect the expansion to continue."

    On Tuesday, Mr. Lazear defended those predictions, saying they were in keeping with what most economists believed at the time. But he also said that the economic team had known since August, when the housing crisis grew especially acute, that it might have to consider an economic rescue package.

    "We still have not heard from the president as to what he wants to do on this," Mr. Lazear said Tuesday. "He's been focused on the Middle East."

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    Steven R. Weisman contributed reporting.