Deficit Could Dim Hopes for Stimulus II

Posted February 4, 2008 at 6:50pm

President Bush’s gloomy election-year budget and his prediction of a return to massive $400-billion-plus deficits could put a damper on Democratic plans for a second stimulus package that likely would include tens of billions in new spending.

[IMGCAP(1)]Even as Senate Democrats struggle to find Republican votes for a larger stimulus package this week, they face growing resistance from conservative Democrats, particularly in the House, to plans for a second stimulus package unless it complies with pay-as-you-go budget principles.

The unease among fiscal conservatives has only been bolstered by the new deficit predictions, which show the deficit more than doubling this year and next because of the faltering economy, the first stimulus package and surging war costs. But Blue Dogs and PAYGO rules already have been rolled twice in a matter of months — first on an offset-free alternative minimum tax patch and now on the first stimulus package — and it’s unclear how big a stink conservative Democrats and Republicans are prepared to make when push comes to shove in the next stimulus round.

“Republicans can stop anything we want to do in the Senate, and we are conscious of not looking like big spenders,” said one senior House Democratic aide. “That being said, if unemployment is through the roof, will it be that hard to get another package through of unemployment benefits and food stamps in an election year?”

House Democrats spent much of the time at their retreat last week discussing possible options for jump-starting the economy, potentially in a series of bills. House Majority Leader Steny Hoyer (D-Md.) last week noted many options are being considered by Democrats, including extending unemployment insurance, bolstering food stamps and providing aid to cash-strapped states.

“All of those were options that were obviously brought up by Members,” Hoyer said at the retreat. But Hoyer said he hoped the first stimulus package would work. “We hope it has a positive effect along with the actions of the Federal Reserve.”

Many Democrats also are pushing for an infrastructure-project-laden bill that would jump-start the construction industry and build roads, bridges and mass transit, but that might need significant Republican support to insulate Democrats from attacks that they are pushing a pork paradise. Other Democrats also want more aid for homeowners facing foreclosure, or for a broader package of alternative energy proposals.

But first, Senate Democrats hope to pass their broader stimulus package, counting on the combined lobbying might of AARP, homebuilders, veterans and business groups to get enough Republicans to back a Senate Finance Committee stimulus package that would cost nearly $200 billion over two years.

Democrats are confident that whatever emerges from the Senate will swiftly be adopted by the House and sent to the president in time for the Presidents Day recess, and they note that the president has not yet threatened to veto the package if it reaches his desk despite saying he prefers the House bill.

“Nobody in this city wants to be responsible for holding this bill up,” said Senate Finance Chairman Max Baucus (D-Mont.), who predicted his package would pass on the Senate floor Wednesday.

Baucus said the fate of a second package remains uncertain. “There has been a lot of interest in a second stimulus package, a lot of interest, but it hasn’t been formulated yet. … It largely depends on the state of the economy. If it goes significantly further south, there’s going to be a lot of pressure,” he said.

Senate Majority Leader Harry Reid (D-Nev.) has said he would like to see another package completed in weeks, not months.

But Senate Majority Whip Dick Durbin (D-Ill.) warned that not everything Senators are hoping to add will make the cut.

“At some point we face a Blue Dog problem,” he said last week.

House Budget Chairman John Spratt (D-S.C.) said he would like to see the Democrats return to PAYGO rules. “A lot of us swallowed hard at the AMT and would like to return to the discipline we had on PAYGO and pay for everything,” Spratt said.

But he acknowledged that the party faces the same pressures they did last year on extending the AMT, and he said that some limited additional stimulus measures would be reasonable. He said unemployment insurance — a part of the Senate Finance package — should be extended, even without offsets, given the downturn in jobs. Spratt also said the stimulus “could to some extent pay for itself” by preventing a deep recession that would shrink tax receipts.

And although Senate Budget Chairman Kent Conrad (D-N.D.) said he’s concerned that the first stimulus package sets a tone of not abiding by PAYGO rules, he declined to rule out future stimulus packages. Conrad instead sought to focus on Bush’s fiscal legacy, which he lambasted for creating a $10 trillion “wall of debt” that will confront the next president. Conrad has backed the broader Senate package, including tax breaks for alternative energy, unemployment insurance and other initiatives despite the lack of offsets.

Republicans face their own pressures, as fiscal conservatives have been agitating for deep, permanent cuts in corporate tax rates, which they argue would reignite growth in the economy. But so far Republicans do not yet have a solid game plan for providing an alternative to another stimulus package, beyond opposing what they expect will become a porkfest and calling for another round of earmark reform.

“It’ll be hard for Democrats to claim they are the party of fiscal responsibility, if they put forward what they’d call a second stimulus package that ends up being a multibillion dollar Christmas tree of more Washington spending,” said a House GOP leadership aide. “That’s easy for Republicans to oppose, because poll after poll shows that the American people believe that Washington is broken and don’t trust this Democrat Congress to spend more of their money.”

Jennifer Yachnin contributed to this report.