The “gang of three” — liberal Republican Sens. Arlen Specter, Olympia Snowe, and Susan Collins — who handed President Obama the stimulus bill he so desperately needed, apparently sacrificed billions in tax cuts during final negotiations over the measure in order to reduce its cost.
The compromise bill, which may be ready for President Obama’s signature as early as Monday, also stripped America’s ailing businesses of tax benefits and other incentives.
“From auto dealers to the home-building industry, big business appears to be the biggest loser in the final economic stimulus plan . . .” The Wall Street Journal online reported, noting that Democrats removed key tax cuts and benefits for business as political payback for Republicans who failed to support the plan.
Though Republicans who crossed party lines apparently got rewarded. The New York Times reported Thursday that Specter got $6.5 billion for medical research. The senator is ailing from cancer.
The bill worked out in negotiations between the House and the Senate reduced the tax cuts from 42 percent of the cost of the $838 billion bill passed by the Senate, to just 35 percent of the $789.5 billion compromise bill.
Correspondingly, the spending portion of the bill rose from 58 percent in the original Senate measure to 65 percent.
Although the bill is still being tweaked, Congress is on the verge of sending it to Obama for his approval. Despite the drop in total outlays, the legislation’s total cost is more than the entire cost of the Iraq war since U.S. troops invaded in 2003.
Democratic leaders conferenced repeatedly Tuesday evening and Wednesday with the three GOP senators, whose votes were critical to the bill’s passage. Other Republicans complained bitterly that they were shut out of negotiations.
Although Democrats continued to fine tune the details of the massive spending bill on Thursday, key provisions of the legislation now include: $514 billion in spending programs, compared to $275 billion in tax cuts. The tax reductions are evenly split between cuts for business and cuts for individuals. Democrats say the bill will now only “save or create” 3.5 million jobs, not the 4 million originally touted. States will receive $87 billion to help pay for Medicaid. It’s less than the Senate version called for, and states will still face huge Medicaid deficits in the future. The “stabilization fund” to help states stave off massive deficits and layoffs rose from $44 billion to $53.6 billion. That’s more than the Senate expected to spend, but far less than the $95 billion the House version sought to dole out. The bill helps General Motors Corp. avoid a $10 billion tax liability, Bloomberg.com reports. The huge tax burden stems from GM’s move to exchange equity for reduced debt and union healthcare commitments. The equity swap is necessary to qualify for $13.4 billion in loans extended by the federal government. Homebuilders figure to be sorely disappointed. They hoped for a provision that would allow them to apply recent losses against past taxes on profits paid during the boom years, which would have resulted in tax refunds. It would have cost $67.5 billion, and that price tag was too high. Obama’s plan to give workers a break on payroll taxes was cut back. It went from $500 to $400 for individuals and from $1,000 to $800 for couples. Individuals earning $75,000 and couples earning $140,000 are ineligible. Many students will earn a $2,500 tuition tax credit. As with many of the benefits, it is limited by income. The full benefit is only available to those earning less than $80,000 (or less than $160,000 for joint filers. The stimulus increases the earned income tax credit, on a temporary basis, from 40 to 45 percent of earnings for families with three or more children who have low incomes, CNN reports. This will cost $4.6 billion. A $6.5 billion item for medical research pushed by Sen. Specter, a cancer survivor. It will stay. Unemployed workers would receive an additional 20 weeks of unemployment compensation as well as health-care subsidies. Also, the weekly unemployed benefit will rise from $300 to $325.
Obama’s plan to give companies a $3,000 credit for adding jobs drew fire from both sides of the aisle, and was jettisoned. The proposed $15,000 tax credit as an inducement to buy a new home was nixed. Instead, the bill will eliminate the requirement to repay an existing tax credit for those purchasing a home for the first time, and the size of that credit rose from $7,500 to $8,000. And that may change further as the bill moves forward, sources say. Folks on Social Security will receive a payment of $250, according to The Washington Post.
A general fund to help schools, which could go toward school construction, rose from $39 billion to $54 billion in the bill’s latest iteration. School funding was a key item sought by Obama. Miscellaneous spending items included in the bill range from a boost in the food stamp program ($16.5 billion), to rural access to high-speed Internet ($7 billion). Construction firms are big winners too: The bill includes an estimated $50 billion of infrastructure spending on roads and bridges. A $2.3 billion fund called Temporary Assistance for Needy Families has been created. It is essentially a new welfare program that will give cash to those in need. Democrats and President Obama say the bill will improve healthcare nationwide. Some $19 billion is dedicated to health-information technology. It offers doctors up to $64,000 in bonuses for digitizing their medical records. There is a provision that would permit business to avoid taxes for a five-year period on mergers and other deals they make that is designed to clean up their balance sheets. Those tax savings would eventually have to be repaid, however, according to The Wall Street Journal. In a big break for smaller businesses, The Wall Street Journal reports that companies with less than $5 million in annual revenues could apply their current losses toward taxes paid in profits over the past five years. A $5.3 provision will permit companies to accelerate depreciation for capital items such as plants and equipment. $8.4 billion for transit and $8 billion for high-speed rail. Nearly $70 billion to shield middle-class households from the Alternative Minimum Tax, which was designed to keep wealthy individuals from avoiding taxes altogether. There will still be tax breaks for buying a new car, but it will be harder to qualify and the total money available dropped from $11.5 billion to $2 billion, The Wall Street Journal reports. On the other hand, CNNMoney.com reports the measure allows those who buy a vehicle this year to deduct the state sales and excise taxes, as long as the buyer earns less than $125,000 per year.
Ironically what’s not clear, economists say, is whether the compromise version will have the punch to create the jobs needed to begin moving the nation toward economic recovery.
"It's a good plan, but I don't think it's good enough," said Mark Zandi, chief economist at Moody's Economy.com, told the Wall Street Journal. "Three million additional jobs are doable and likely; four million I think will be a stretch."
But other GOP congressmen complained they were frozen out of the negotiations over the bill, despite pledges by Obama and congressional Democrats to be more open, transparent, and bipartisan. House Minority Whip Eric Cantor, for example, said Republicans had been “kept in the dark.”
“My question,” Cantor told The Washington Times, “is what is the majority trying to hide by never allowing any ventilation of ideas, any discussion of what we have brought forward as the Republican vision to stimulate this economy?”
As those remarks suggest, even as the battle over the stimulus bill’s passage winds down, the debate over the soundness of its provisions and whether it’s good or bad for the economy has just begun.
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