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Spending, Tax Cuts in Stimulus Package Provoke Fierce Debate in Senate

February 3, 2009 at 6:20 PM EDT
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Opponents of the stimulus package moving through the Senate are skeptical of the bill's increasing size, and of certain proposals they claim would not effectively boost the economy. Senators Jack Reed and John Thune debate the measure.
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RAY SUAREZ: The president has been keeping public pressure on Congress all week.

U.S. PRESIDENT BARACK OBAMA: By now our economic crisis is well known. Our economy is shrinking. Unemployment rolls are growing.

RAY SUAREZ: Today, Mr. Obama again urged quick action from the Senate on the stimulus plan.

U.S. PRESIDENT BARACK OBAMA: Now is the time for Washington to act with the same sense of urgency that Americans all across the country feel every single day. With the stakes this high, we cannot afford to get trapped in the same, old partisan gridlock.

SEN. DEBBIE STABENOW, D-Mich.: Good-paying American jobs, gone.

RAY SUAREZ: While the president personally encouraged a bipartisan approach, senators continue to grapple with their plan, nearing $900 billion. Lawmakers on both sides are pushing a range of ideas, like more money for construction projects and a mortgage subsidy to help home buyers.

The House version passed without a single Republican “yes” vote last week. It’s being amended now to gain that needed support.

Changes in the works from the House version include $70 billion to protect 24 million Americans from the alternative minimum tax; $9 billion — $3 billion more than in the House’s original bill — for extending Internet growth in rural communities; only $5 billion, down from $20 billion, for health care infrastructure, like modernizing medical records; more tax cuts; and an effort to lower mortgage rates.

One other difference: how to expand health care coverage. The House bill would expand Medicaid to cover more unemployed adults. The Senate plan does not include that measure. Republicans signaled today that, despite the president’s hopes and the Democrats’ assurances, the end is not close at hand.

SEN. JOHN MCCAIN, R-Ariz.: So the process was wrong from the beginning.

RAY SUAREZ: Instead, some Republican senators offered their own alternative, just half as large as the Democrats’ bill, $445 billion. It would cut payroll and income taxes for a year, lower the corporate tax rate, and offer home buyers a new tax credit.

SEN. MITCH MCCONNELL, R-Ky., Senate minority leader: I think most of my members feel that you can get the job done with a lot less than a trillion-dollar spending package.

RAY SUAREZ: This afternoon, Minority Leader Mitch McConnell was tough on the Democrats’ bill.

SEN. MITCH MCCONNELL: We need to sober up here and take a look at what we’re doing. Everybody agrees that there ought to be a stimulus package. 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 will be to pare it down and to target it right at the problem.

RAY SUAREZ: Republicans also blocked the Democratic amendment today that would have added $25 billion in highway spending. Still, Senate Democrats say they hope to pass a bill by Friday in order to meet their promise to give the president a bill by mid-February.

Senators stand behind Daschle

Senator Jack Reed
D - Rhode Island
I think it's encouraging to note that we're moving along with amendments, that there's no sense in -- at least in my view -- of delaying this, but there is an opportunity to provide different insights. And we'll take that opportunity.

RAY SUAREZ: We get two views now about all of this, as well as some response on today's decision by former Senator Daschle. It comes from Democratic Sen. Jack Reed of Rhode Island -- he sits on the Appropriations Committee -- and Republican Sen. John Thune of South Dakota. He's one of several senators that offered a Republican alternative proposal today.

And, gentlemen, before we go to the stimulus package, I wanted to talk to you briefly about the decision of Sen. Tom Daschle to remove himself as a nominee for HHS secretary.

Senator Reed, if he had decided to remain the nominee, do you think he could have prevailed?

SEN. JACK REED, D-R.I.: I think he could have prevailed, but I think Senator Daschle put country above his own personal situation and decided that it would be better to get on with the agenda, particularly this recovery package, than to spend days and days involved in a contentious discussion of his own situation.

RAY SUAREZ: And, Senator Thune, I guess saying you know him well would be an understatement. You fought a tough campaign against him and replaced him in the U.S. Senate. What was your reaction to today's decision?

SEN. JOHN THUNE, R-S.D.: I think Jack said it well. Senator Daschle made a decision; we all respect that decision. It was a very unfortunate situation.

Senator Daschle clearly came to the conclusion that this was becoming a distraction, and so we wish he and his family well and certainly appreciate his many contributions in public service.

RAY SUAREZ: Now to the Senate debate over the stimulus package. Senator Reed, President Obama said today that the differences between the various proposals are, in his words, very modest. Are they?

SEN. JACK REED: Well, they are modest. I think the overwhelming consensus on both sides of the aisle is that we need to have a recovery package that gets people back to work, that invests not just in the short run, but in the long run.

And I hope that when we get on the floor that we can resolve these differences. I think it's encouraging to note that we're moving along with amendments, that there's no sense in -- at least in my view -- of delaying this, but there is an opportunity to provide different insights. And we'll take that opportunity.

RAY SUAREZ: Senator Thune, would you share the president's description as very modest, the differences among your colleagues?

SEN. JOHN THUNE: I don't know that I would go in so far as to say modest. I think there are some significant differences both with regard to the size of this proposal as well as to the substance of it.

And there are many of us who believe that it is too large, that a trillion dollars and well over a trillion dollars when you start talking about the interest, is way more than we need to be doing in terms of stimulating the economy, at least for what we're getting out of it in this proposal.

And that comes back to the other side of this, which I think is the substance, that much of the spending in this proposal isn't targeted, it isn't temporary, it isn't timely. It is, in fact, spending on government programs, many of which don't do anything to stimulate the economy or create jobs.

Republicans will be offering amendments and alternatives to this, which we think are going to be much more effective at doing that and hopefully at a lot less cost.

Republicans lobby to shrink bill

Senator John Thune
R - South Dakota
I certainly think that it's going to be very difficult to get Republicans to vote for the final bill if, in fact, it doesn't change substantially both with regard to its size as well as to the substance of many of the provisions in the bill.

RAY SUAREZ: Well, Senator Thune, the president asked his fellow Democrats to take heed of GOP concerns about the structure of the bill. Do you feel like you're being listened to?

SEN. JOHN THUNE: Well, I think we do believe this will be an open debate. We certainly hope that it is. And so far we've had some debate on amendments. We just had a couple of votes.

My expectation is that there will be a chance -- and I hope it's successful -- for us to make some improvements and modifications to this.

Whether or not those votes end up being successful, we don't know. But Republicans at least want an opportunity to offer their amendments and get their ideas out there and get them voted on. I hope that they're successful; I don't know that that will be the case.

But I certainly think that it's going to be very difficult to get Republicans to vote for the final bill if, in fact, it doesn't change substantially both with regard to its size as well as to the substance of many of the provisions in the bill.

RAY SUAREZ: Senator Reed, how about you? Do you feel that you and your colleagues, who have a big hand in drafting this and getting it through, have heard the president's message that your colleagues across the aisle have to have a hand in shaping the final version? And are there things you're willing to do without?

SEN. JACK REED: Well, the shaping process is ongoing. That's the whole purpose of the amendments.

I think that the bill starts off with an emphasis on putting people back to work; that's President Obama's key element. They also recognize that people need immediate relief in terms of tax rebates to working families. There is that provision in the bill.

So the money will go out, and it will be deployed, I think, rather quickly; 75 percent of the funds should be expended in about 14 months. This is necessary, because there are so many families that are desperate to get a job or to keep a job.

And, indeed, I think one of the amendments we tried to present today -- and it failed -- was to increase the spending on infrastructure, which is absolutely critical to put people to work.

But we're going to continue on both sides to work away at this. And I think at the end that everyone should come away with the feeling they had the opportunity to make their points. But overall the American public, the American workers need this bill very quickly to restore not only their economic well-being, but their confidence.

McCain proposes housing measure

Senator John Thune
R- South Dakota
The Democrat proposal is almost $900 billion -- with interest, well over a trillion dollars -- which would be the largest intergenerational transfer of debt in human history.

RAY SUAREZ: Senator Thune, you, along with Senator McCain of Arizona, Senator Martinez of Florida, among others, put forward this much smaller proposal. What does the shape of it tell your Democratic colleagues about what Republicans want to see in a final version?

SEN. JOHN THUNE: Well, bear in mind, as I said earlier, that the proposal that we have in front of us, the Democrat proposal, is almost $900 billion -- with interest, well over a trillion dollars -- which would be the largest intergenerational transfer of debt in human history.

That's a lot of money to be borrowing from the next generation. You better make sure that it's done the right way and that it's effective and that it works.

And what we have concluded is that much of the spending in that bill is just that. It's spending. It's not going to do anything to stimulate the economy or create jobs.

So Senator McCain has put one proposal forward. There are a number of others that will be put forward. Senator McCain's proposal focuses I think appropriately on housing, which brought us into this recession. And we think it's going to be an important component in bringing us out, in reducing taxes on middle-class families, providing tax incentives for small businesses to create jobs. Small businesses create two-thirds of the jobs in the economy.

He put some money into defense, military spending, reset money that we think is important to our national security and that could be spent very quickly. And then he also increases some of the infrastructure spending in the bill, which, again, roads and bridges, those sorts of things that many of us agree on, that really are important in terms of creating jobs.

And the final thing I'll say is he has a trigger in there that, when we have two consecutive quarters of economic growth of positive GDP, that the spending ceases. There is a hard trigger that requires a lot of the spending that would be made available under this bill to be terminated. And we think that's important, as well, so that it really is a temporary thing and not something that creates spending that continues for a long period of time.

RAY SUAREZ: Well, Senator Reed, how do you answer the oft-made GOP charge that the Democratic package has a lot of things in it that don't put people back to work, don't have a stimulative effect on the economy?

SEN. JACK REED: Well, The package has a stimulative effect on the economy. First, there's a concentration of infrastructure which will put people back to work immediately. Also, there are programs that put real money in the hands of working families so that they'll go back into the marketplace and start consuming and drive up demand. That's another aspect of this.

And in addition, it recognizes that these programs have to be ready to go. There's a strong emphasis on putting the money into the economy as quickly as possible, but also a strong audit trail.

And as for an intergenerational transfer, the same argument could be made about deficit financing of the war in Iraq and the deficit financing of tax cuts which my Republican colleagues supported enthusiastically.

This is a critical moment in which we have to not only put people back to work, but give them discretionary spending power to restore the economy, and also to ensure that we succeed in this effort, because, in addition to the resources we put in the economy, we have to restore confidence.

So I think the best way to do that is to come together on this bill, support President Obama's plan. He has, I think, a mandate from the people of change, change the policies that last year alone cost us 2.6 million jobs in the American economy. Those policies were the results of the Bush policies.

Senators optimistic about deadline

Senator Jack Reed
D - Rhode Island
Unless we restore the confidence, unless we do it, I think, with a strong, strong effort, we could be in danger of something I think happened last year with President Bush's proposal, a rather small tax rebate that wasn't spent.

RAY SUAREZ: Well, Senator Reed, the price tag on the current alternative proposal is about half the Democratic package. Is that a bridgeable gap?

SEN. JACK REED: Well, I think what we do now has to be focused, and I think the president's plan is focused. And I think there has to be a certain amount of energy and, for want of a better word, oomph behind the effort.

I mean, we're in a very critical position. We are bleeding jobs. The economy is suffering. People are very, very fearful. And unless we restore the confidence, unless we do it, I think, with a strong, strong effort, we could be in danger of something I think happened last year with President Bush's proposal, a rather small tax rebate that wasn't spent. It was saved, in some cases, or paid down interest on credit cards and it didn't move the economy.

So I think, if we're going to move forward, we have to move aggressively.

RAY SUAREZ: Senator Thune, a lot of polling has come out over the past week that show that the president's proposals are pretty popular, at least a plurality in every major poll, a majority in some of them. Do voters exert some push and pull on how you and your colleagues deliberate now?

SEN. JOHN THUNE: I think they do, and they're starting to be heard from. There was a Gallup poll that was released this morning that showed support for the proposal that we have in front of us, the House-passed version of this -- you want to call it the president's plan, whatever -- at only 38 percent, and 54 percent wanting to see either it rejected or changed in some significant way.

So I think that the American people are starting to pay attention and starting to listen. They're realizing that this is an enormous amount of spending to be followed by the first trillion-dollar appropriation bill, which will be coming very soon, the omnibus bill, and we believe additional requests for funds to further stabilize the financial markets that we expect Secretary Geithner to make a request for soon, and a supplemental appropriation bill for the ongoing efforts in Iraq and Afghanistan.

There is an enormous amount of spending going on in this city right now. And all Republicans are saying is, let's step back and take a look at this and make sure that, whatever we're doing, we're doing it in a way that is effective and creates jobs.

And the best way to do that is to get money quickly back into the hands of the American people. And the tax reductions, for example, in Senator McCain's plan of reducing marginal income tax rates from the 15 percent down to 10 percent, from 10 percent down to 5 percent, and providing a one-year holiday for payroll tax, which is low-income, middle-income Americans would get the benefit of that.

And the difference between that and the rebate proposal that Jack mentioned last year is the rebate went out in checks at one time so people put it in the bank and saved it. When you actually get that in your check, when your paycheck comes out every couple of weeks or every month, it's a different thing.

We think that that will go back into the economy, and history has proven that, when you do reduce taxes, marginal income tax rates, as well as payroll taxes on the American people, that it does have a stimulative effect.

So we think that works a lot better in terms of creating jobs, along with the other things that I mentioned, the other components, including housing, which I think is going to be critical in this debate.

RAY SUAREZ: Senator Reed, before we go, the president has expressed the hope that this could be wrapped up by mid-month. Are you going to be able to meet that calendar deadline?

SEN. JACK REED: We are trying our best. And so far with these amendments on the floor and the cooperation of both sides, we are making progress. And that is the goal. I hope we can meet it. I think we have to meet it. I think the American people expect us to get this bill finished in a timely manner.

RAY SUAREZ: And, Senator Thune, do you share your Rhode Island colleague's optimism before we go, quickly?

SEN. JOHN THUNE: I know there's a rush to get this done. I think it needs to be done right. And if it takes a little bit more time to do that, we should do it.

RAY SUAREZ: Gentlemen, thanks for joining us.

SEN. JOHN THUNE: Thanks.

SEN. JACK REED: Thanks.