14.1.09

BAILOUT - Stimulus Package Approaches $850 Billion

Stimulus Package Approaches $850 Billion by Greg Hitt (www.wsj.com)
Jan 14, 2009

The price tag of the two-year economic stimulus bill has grown close to $850 billion after a series of negotiations that have that tilted the package toward investments designed to spur job creation and soften the blow of the economic downturn on families and local governments.

Details could be released soon, as top Democrats in Congress and the incoming Obama administration make good on a pledge to air the package ahead of formal action, which begins next week after President-elect Barack Obama is sworn into office on Tuesday.

Congressional aides and others familiar with negotiations cautioned that the House and Senate could have slightly different packages, with differences expected to be ironed out in additional talks next month, following initial action on the House and Senate floors.

The starting point will be in the tax-writing House Ways and Means Committee, which is chaired by Rep. Charles Rangel (D., N.Y.). Rep. Rangel wants to drop an Obama-backed proposal to give businesses tax relief by allowing them to claim new refunds from the government by carrying losses back to prior tax years. The Senate so far has insisted the provision remain in the measure.

Instead, Rep. Rangel wants to add in a $70 billion provision that would hold middle-class families harmless from the alternative minimum tax. The so-called AMT was designed to ensure that wealthy individuals pay their fair share of taxes but now threatens to raise the tax bills of millions of working Americans, too.

Rep. Rangel and other top congressional Democrats appear united in their concern with another Obama priority: a proposal to create a special tax credit for businesses that create jobs. That proposal now appears likely to be killed or sharply curtailed.

The changes have allowed lawmakers and Obama aides to raise support for renewable energy, among other things. And taken together, the horse-trading has pushed up the overall cost of the recovery package well beyond the $775 billion initially envisioned when Obama aides approached Congress a few weeks ago.

The core of plan, in both the House and Senate versions, will be the "Make Work Pay" credit, which effectively provides working Americans with a payroll tax holiday. That proposal soaks up half of the $300 billion that is being set aside for tax cuts.

Seniors and individuals receiving Social Security disability payments would also receive a one-time tax benefit, and action would also be taken to broaden eligibility of the child tax credit.

On the business side, the package would extend special write-offs in the tax code designed to encourage business to make capital investments. About $25 billion would be spent on energy tax incentives, including provisions promoting conservation and development of wind, solar and other renewable sources of power.

Also under discussion is a proposal to provide incentives for low-income housing, with the goal of addressing concerns that the low-income housing credit has fallen out of favor with investors amid the downturn in the economy, threatening to slow the pace of construction. The program under development by House tax-writers as part of the stimulus package would send money directly to local housing authorities in hopes of ensuring there are no gaps in construction, individuals familiar with negotiations said.

House tax-writers are also working on a proposal that would ease repayment requirements for taxpayers claiming the tax credit for first-time home purchases. Under current law, the $7,500 value of the credit for couples must be a repaid to the government over several years. But that would be waived under the proposal.

Under the broader recovery package, short-term spending designed to spur job creation would grow to more than $500 billion, reflecting a mix of direct appropriations, such as investments in highways and bridges, as well as increased commitments to social benefit programs, such as unemployment insurance and Medicaid, the federal state program that provides health care to the poor.

Under the plan, state and local governments would benefit from a substantial portion of the spending, receiving more than $160 billion in federal aid. The proposal is likely to be accepted by the Senate, which is working on a provision of similar scope, as well as the incoming Obama administration, said individuals familiar with negotiations.

Further, the proposal would steer $80 billion toward an "education stabilization fund," which would be used to help states, which have been hit hard by the downturn in the economy, avoid cut backs in teachers and classroom programs. Another $87 billion would be set aside for Medicaid, the federal-state health program for low-income families. Another $3 billion would be spent to roll back Medicaid regulations imposed by the Bush administration.

Additional funds would also go toward food assistance for low-income families, and expanded jobless benefits.

Write to Greg Hitt at greg.hitt@wsj.com

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