Stimulus sparring will test Congress

WASHINGTON — The Senate agreement on a roughly $827 billion economic-stimulus bill sets up tough negotiations with the House, primarily over tens of billions of dollars in aid to states and local governments, tax provisions, and education, health and renewable-energy programs.

Congress is racing to complete the legislation this week.

The price tag for the Senate plan is only slightly more than the $819 billion measure adopted by the House. Both plans are intended to blunt the recession with a combination of quick-acting tax cuts to help increase spending by consumers and businesses, and slower long-term government spending on public-works projects and other programs to create more than 3 million jobs.

But the competing bills reflect substantially different approaches. The House puts greater emphasis on helping states and municipalities avoid wide-scale cuts in services and layoffs of public employees, while the Senate cut $40 billion of that type of aid from its bill.

The Senate plan, a tentative agreement reached late Friday between Democrats and three moderate Republicans, focuses more heavily on tax cuts, provides far less generous health-care subsidies for the unemployed and lowers a proposed increase in food stamps. To help allay Republican concerns about cost, the Senate proposal also scales back President Obama's signature middle-class tax cut.

At the same time, the Senate plan creates $30 billion in tax incentives to encourage Americans to buy homes and cars within the next year.

Republican opponents continued to rail against the stimulus plan on the Senate floor in a rare session Saturday, even though it was unlikely they would have the votes to stop it.

The negotiations in Congress will test whether Democrats, who think they won a mandate in November to pursue their goals, are willing to give up some of their favored long-term policy initiatives to win over more Republican votes. It also will test whether any but the most moderate Republicans are willing to support the Obama administration.

Speaker Nancy Pelosi, D-Calif., who was in Williamsburg, Va., on a retreat with her fellow House Democrats on Friday, called the emerging Senate cuts to the stimulus program "very damaging" and said she was "very much opposed to them." But after the Senate reached its deal, Pelosi expressed resolve to complete the legislation in the days ahead.

Strong support

Obama, who has made economic recovery the centerpiece of his agenda, is expected to take a stronger hand in the negotiations and will embark on an aggressive public lobbying campaign. He will conduct a town-hall-style meeting in Indiana on Monday, followed by a formal White House news conference Monday night. He will pitch the plan again Tuesday in Florida and Wednesday in Virginia.

In his weekly radio and Internet address on Saturday, the president praised the Senate deal and urged quick passage of a final bill.

"The time for action is now," Obama said. "If we don't move swiftly to put this plan in motion, our economic crisis could become a national catastrophe."

Also Monday, Treasury Secretary Timothy Geithner is expected to announce the broad outlines of a rescue plan for the financial industry. The administration hopes the announcement will quiet some critics in Congress who say not enough is being done for the housing sector.

While Senate Democrats reached an agreement with moderate Republicans on Friday, more conservative Republicans refused to fast-track the legislative process.

Sen. David Vitter, R-La., insisted the deal required careful deliberation and said he would spend the weekend reviewing it, even though it was clear he was unlikely to support the measure.

Fight over $40B

The majority leader, Sen. Harry Reid of Nevada, said final passage of the Senate bill was expected Tuesday, and congressional leaders would move quickly to get the bill into conference to reconcile the House and Senate versions, in hopes of sending the bill to the White House by the end of the week.

The House and Senate must vote again to approve the final legislation, leaving a chance for unexpected pitfalls.

The main fight is likely to be over the Senate's proposal to cut $40 billion from proposed aid to states. Such aid does not necessarily lift the economy, but it prevents states from carrying out cuts that could make the recession worse, and the money can be deployed quickly, a challenge in any large stimulus effort.

The $40 billion was the single largest cut in a paring back of the Senate proposal that helped seal a deal between Democrats and moderate Republicans, thanks to the efforts of a bipartisan group led by Sen. Susan Collins, R-Maine, and Ben Nelson, D-Neb.

Other trims the group settled on were eliminating $19.5 billion in construction aid for schools and colleges and slicing proposed new aid for the Head Start early-childhood program by $1 billion.

Will tax cuts survive?

In some cases, the cuts to the Senate bill brought it closer to the House proposal. For instance, the senators reduced financing to expand broadband data networks in rural and underserved areas to $7 billion from $9 billion. The House has proposed $6 billion.

Another big difference is the Senate's inclusion of nearly $70 billion to protect thousands of middle-class Americans from paying the alternative minimum tax in 2009, sparing them from a system originally intended to prevent the wealthy from claiming too many tax deductions.

Obama and his aides have strongly resisted any change to his middle-class tax-cut proposal, one of his main campaign promises. The plan includes a tax credit of up to $500 for individuals and up to $1,000 for couples, with the credit phasing out for individuals earning more than $75,000 a year and couples more than $150,000.

The Senate bill would lower that income cap to $70,000 for individuals and $140,000 for couples, saving the government $2 billion but potentially reducing the effectiveness of a tax break that is intended to lift consumer spending and help jump-start the economy.

It is unclear how the House will react to an $11 billion Senate tax break to encourage consumers to buy cars by allowing them to deduct any sales tax and one year of loan interest. And the chambers must reconcile competing homebuyer tax credits.

To stabilize real-estate prices, the House would give first-time homebuyers a tax credit of 10 percent of a home's cost, up to $7,500, with income caps reducing the credit for individuals earning $75,000 and couples earning $150,000 — at a cost of $2.6 billion.

The Senate plan includes a more generous credit of 10 percent, up to $15,000 that would be available to all homebuyers, with no income limits. That credit, proposed by Sen. Johnny Isakson, R-Ga., would cost $18.5 billion.

A formal conference to resolve the differences between the two bills is expected to begin by the middle of the week.