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

Worst year for jobs since '45

Annual loss biggest since end of World War II. Unemployment rate rises to 7.2%.

By David Goldman, CNNMoney.com staff writer

Last Updated: January 9, 2009: 12:11 PM ET

NEW YORK (CNNMoney.com) -- The hemorrhaging of American jobs accelerated at a record pace at the end of 2008, bringing the year's total job losses to 2.6 million or the highest level in more than six decades.

A sobering U.S. Labor Department jobs report Friday showed the economy lost 524,000 jobs in December and 1.9 million in the year's final four months, after the credit crisis began in September.

The unemployment rate rose to 7.2% last month from 6.7% in November - its highest rate since January 1993.

The steep annual drop in jobs marked the highest yearly job-loss total since 1945, the year in which World War II ended.

"We're seeing a complete unraveling of the labor market and are on track for getting beyond 10% unemployment," said Lawrence Mishel, president of the Economic Policy Institute.

The total number of unemployed Americans rose by 632,000 to 11.1 million.

November, in which 584,000 jobs were lost, and December marked the first time in the 70-year history of the report in which the economy lost more than 500,000 jobs in consecutive months.

"We have a bigger economy now, but even on a proportional basis, the last months have been the worst since [1945]," said Kurt Karl, head of economic research at Swiss Re. "It's just an enormous acceleration of job losses."

By comparison, the 2.6 million jobs lost in 2008 nationwide were equal to the number of jobs found in states such as Wisconsin, Missouri or Maryland.

Under-employment at a record high

A growing number of workers seeking full-time jobs were able to find only part-time work. Those working part-time jobs - because they couldn't find full-time work, or their hours had been cut - jumped by 715,000 people to 8 million, the highest since such records were first kept in 1955.

The so-called under-employment rate, which counts those part-time workers as well as those without jobs who have become discouraged and stopped looking for work, rose to a record 13.5% from 12.6%. Calculations for that measure began in January 1994.

"The existing unemployment figures are greatly understated," said billionaire steel tycoon Wilbur Ross in a recent interview with CNNMoney.com. "They count as employed someone who used to have a high-paid manufacturing job, and now is working at a Wal-Mart or a Wendy's."

In another discouraging sign, the average hourly work week fell last month to 33.3 hours - the lowest level in history - from 33.5 hours. Even with a modest 5-cent gain in the average hourly salary, the average weekly paycheck fell by $2 to $611.39.

Job losses widespread

Job losses were spread across a wide variety of industries. Manufacturing lost 149,000 jobs, the leisure and hospitality industries cut 22,000 jobs, and the mining industry shed 1,000 positions.

Even in the midst of the holiday shopping season, retailers still slashed payrolls by 66,600 workers last month.

Professional and business services jobs, a category seen by some economists as a proxy for overall economic activity, dropped by 113,000. And financial services jobs fell by 14,000.

Only two of ten industry categories were hiring last month. Government hiring, which has stayed relatively strong throughout the downturn, added another 7,000 jobs in December. Education and health services also grew payrolls by 45,000 employees.

Construction employment shrank further by 101,000 jobs, and the rate of construction unemployment soared to 15.3% - by far the highest of any group.

"Today's jobs report ... is conclusive evidence that it is time to put people back to work building America," said Terry O'Sullivan, general president of the Laborers' International Union of North America. "Now it's time for Congress to move to create jobs with the same urgency as they did on the $700 billion Wall Street bailout."

Call for stimulus

President-elect Barack Obama has begun his push for a massive stimulus plan, aimed at creating or saving 3 million jobs over the next two years. Lawmakers have called for rapid action to address the extraordinary stresses facing the labor market, including spending hundreds of billions of dollars on new infrastructure projects.

"This morning, we received a stark reminder about how urgent action is needed," said Obama at a Friday press conference. "Clearly the situation is dire, it is deteriorating and demands urgent and immediate action. For the sake of our economy and our people, this is the moment to act, and act without delay."

Many economists have said job losses will continue to accelerate without government intervention.

"The country is losing half a million jobs in a month, and if the government doesn't act quickly, there's no reason that wouldn't intensify," said Mark Zandi, chief economist of Moody's Economy.com before a Democratic Steering and Policy Committee forum Wednesday.

Infrastructure experts agree, saying unemployed construction workers are eager to get back to work.

"Putting money into highways won't by itself end the recession, but it will put a lot of skilled workers back on job," said Ken Simonson, chief economist for The Associated General Contractors of America.

December's job losses were expected to be deep, as employers looked to slash payrolls to free up balance sheets for the new year. But large-scale cutbacks may continue throughout the first half of 2009, economists say, as the nation's economy continues on its slow path to recovery.

"I think this [level of job loss] is going to continue at least through March," said Tig Gilliam, chief executive of Adecco Group North America, a unit of the world's largest employment firm. "The many clients I've spoken with are not expecting an economic bounce-back soon. They're making the painful and difficult decisions to adjust their capacity for the reduced demand for their goods and services."

Gilliam and Karl both expect about another 1 million jobs to be lost in January and February before the declines begin to shrink to about a 200,000 level in June. Both said stimulus will help, but they doubt infrastructure jobs will have as quick of a boost as lawmakers hope.

"Infrastructure projects won't have an effect until late in the year," said Karl. "Tax cuts may have a more immediate impact, but as we saw with the last stimulus package, they may have no economic impact at all."

In another sign that more losses will come soon, temporary employment, including workers employed by temp agencies, fell by another 80,600 jobs last month. Employers often cut temporary workers before they begin cutting permanent staff.

The economy has lost more than 2.5 million jobs in the current recession, which began in December 2007, far surpassing the previous two recessions, and just below the 2.7 million jobs lost in the 1981-1982 recession, which had the deepest unemployment in the 70-year history of the report. 

First Published: January 9, 2009: 8:34 AM ET