Update on US Economic Stimulus Measures

February 3, 2009 06:00 PM

via a special arrangement with Informa Economics, Inc.

Senate does not yet have votes to pass stimulus package

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.

-- Timeline for Senate stimulus package: Senate Majority Leader Harry Reid (D-Nev.) predicted Tuesday that the chamber would work into this evening in an effort to complete the stimulus bill (HR1) by the end of the week, with a hoped-for conclusion to a House-Senate conference by the end of next week.

-- Senate Democratic leaders conceded yesterday that they do not have the votes to pass the stimulus bill as currently written and said that to gain bipartisan support, they will seek to cut provisions that would not provide an immediate boost to the economy.

Summers comments. USA Today reported that National Economic Council Director Lawrence Summers said President Obama is "willing to change elements of his economic stimulus plan to meet objections in Congress, but he won't agree to increase its cost significantly or weaken its impact."

-- Senate efforts to include a cut in fixed rate mortgages in stimulus plan called too expensive: Senate Majority Leader Harry Reid (D-Nev.) and Majority Whip Dick Durbin (D-Ill.) said the GOP proposal to cut fixed rate mortgages to 4 percent would be too expensive, costing at least $300 billion. But they signaled willingness to compromise with Republicans on housing amendments and on a spending cut. "I am the whip," Durbin said. "I count the votes. I know the reality. We need Republican support to pass this measure. So we are trying to find a way to reach 'yes.'"

Senate Minority Leader Mitch McConnell (R-Ky.) and other GOP members said they want to heavily amend the bill to provide more tax relief and help for homeowners. Lawmakers said the cost of their plan would be $445 billion, including about $300 billion to help the housing sector. McConnell declined to say how Republicans would pay for those proposals, including whether they would be offset, but he said the goal is to trim the bill and better target its provisions. “Everybody agrees that there ought to be a stimulus package,” McConnell said. “The question is, how big? And what do we spend it on? The House bill is an embarrassment. The Senate bill on the floor is not markedly better. Our goal is to pare it down and target it right at the problem.”

Senate Budget Committee Chairman Kent Conrad (D-N.D.) said he is scouring the bill for projects that do not meet the test of job creation, with the goal of advancing an amendment that would strip "in excess of $50 billion" from the package. "That's our intention," said Conrad, who is reaching out to a wide number of senators, including Republicans, in preparing the amendment.

-- Obama looking at altering 'Buy American' language in stimulus package: President Obama on Tuesday said he did not want to send a protectionist message on world trade and would look at altering "Buy American" language in proposed economic stimulus bills coming out of Congress. "I think it would be a mistake ... at a time when worldwide trade is declining for us to start sending a message that somehow we're just looking after ourselves and not concerned with world trade," Obama said on the Fox television network.

Background: The Senate’s version of the stimulus (S 1) includes a House-passed provision that would require that only US-made iron and steel be used in public works funded by the bill, with certain exceptions, such as when the US product is not available in sufficient quantity or quality, or would drive a project’s price up more than 25 percent. The Senate version would also require that only US-made “manufactured goods” be used in projects funded by the bill.

The governments of both the European Union and Canada sent letters to Congress on Monday urging the provision be dropped. The European Commission said today that it had not agreed any deal with the US to scrap its decision to subsidize EU dairy exports in return for Washington dropping its "Buy American" provision. "There is no deal. Barack Obama's decision to look at altering the Buy American clause in no way affects the EU's dairy decision," a Commission spokesman said.

In a letter to Senate leaders, 100 companies and associations warned Tuesday that the provisions “will backfire on the United States.” The letter, whose signatories include Lockheed Martin Corp., Northrop Grumman Corp. and United Technologies Corp., said the measures “will harm American workers and companies across the entire American economy, undermine US global engagement and result in mirror-image trade restrictions abroad that would put at risk huge amounts of American exports.” In a Jan. 22 letter to leaders in both chambers, 15 trade associations, including the Aerospace Industries Association and the National Defense Industrial Association, argued that the provisions risk shutting US companies out of stimulus packages being written in other countries, violate US commitments not to erect trade barriers during the global downturn and make public works less efficient. If retaliation were to follow in foreign capitals, the $61 billion US defense and aerospace trade surplus — and the roughly 800,000 US jobs it sustains — could be at risk, said Cord Sterling, a vice president at the Aerospace Industries Association.

On the international front, “If Buy America becomes part of the stimulus legislation, the United States will lose the moral authority to pressure others not to introduce protectionist policies,” Michael Wilson, the Canadian ambassador to the US, wrote in a Feb. 2 letter to Senate leaders. “A rush of protectionist actions could create a downward spiral like the world experienced in the 1930s.” “If we are going to handle the economic crisis in a protectionist way, we are going to get less effective action,” John Bruton, the European Union’s ambassador to the US, said in an interview with Congressional Quarterly. “Protectionism simply defeats the purpose of stimulus.”

A new study by the Peterson Institute for International Economics found that the Senate bill’s Buy American provisions would create about 9,000 US jobs. But the resulting retaliation overseas would hurt US exports, costing at least 6,500 US jobs and perhaps upwards of 65,000, the group said. “The Buy American provisions would violate US trade obligations and damage the United States’ reputation, with very little impact on US jobs,” the study concluded.

-- Price tag grows for Senate stimulus package: Republicans agreed late Tuesday to an amendment from Sen. Tom Harkin (D-Iowa) that would add $6.5 billion for the National Institutes of Health, pushing the cost of the bill to $901.7 billion – before interest costs are included. The House’s version, passed without any Republican votes on Jan. 28, cost $819.5 billion, but did not include a $70 billion alternative minimum tax “patch” that Democratic leadership signaled the House would accept – nor does it include around $335 billion in interest costs.

-- Car loan provision approved as Senate amendment: Over the objections of Senate Finance Chairman Max Baucus (D-Mont.) Republicans helped adopt an amendment from Barbara Mikulski (D-Md.) that would create a temporary federal income tax deduction for interest payments on car loans and for state excise and sales taxes paid on new cars. The deduction would be available to individuals making less than $150,000 or married couples making less than $250,000. Senators voted, 71-26, to waive a budget point of order against the amendment. Mikulski said her plan, adopted by voice vote after the procedural vote, would spur auto sales, giving a boost to struggling auto manufacturers and dealers. It would be available for purchasers of any cars made in the US, whether by the Big Three automakers in Detroit or by foreign companies operating US production plants. Baucus said the tax break, estimated to cost $11 billion, was too expensive and encouraged consumer debt. “I think there are other, better ways to help the auto industry,” he said.

-- Senate effort to boost infrastructure spending defeated; another attempt ahead: A proposed infrastructure spending amendment offered by Sen. Patty Murray (D-Wash.) was defeated largely due to opposition from Republicans. The amendment sought to boost the bill’s highway funding from $27 billion to $40 billion, its transit funding from $8.4 billion to $13.4 billion, and its water and sewer funding from $6 billion to $13 billion. Many Republicans objected, saying they supported adding money for infrastructure but wanted it offset with cuts elsewhere. Two Republicans — Kits Bond of Missouri and Arlen Specter of Pa. — voted with the Democrats. Sen. Mary Landrieu (D-La.) voted with the Republicans. Sens. Edward Kennedy (D-Mass.) and Judd Gregg (R-N.H.) did not vote. Baucus, one of the floor managers of the bill, said he expects another attempt to increase infrastructure funding. “It’ll come back again,” he said.

-- Movie production company benefit defeated: By 52-45, senators adopted an amendment by Tom Coburn (R-Okla.) that deleted a provision allowing movie production companies to benefit from bonus depreciation, like other companies.
Repatriation provision defeated: The Senate rejected an amendment to its economic stimulus package that would have given a tax break to multinational companies that brought foreign earnings back to the US.

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.


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