Congress eager to boost economy, not sure how

Lawmakers consider remedies with hope of avoiding backfire

Terrorism Strikes America

The Nation

September 25, 2001|By Karen Hosler | Karen Hosler,SUN NATIONAL STAFF

WASHINGTON - Congressional lawmakers, eager to bolster confidence in the economy in the aftermath of the terrorist attacks, are struggling to craft a stimulus package that would not backfire in the long run.

Virtually all options for tax cuts and spending increases are on the table, congressional leaders say. But they also say they are determined to act only with a bipartisan consensus and to sidestep the pet proposals of one party or the other.

"With the short session we're in this fall, if we pass something, it's going to be because there is a clear-cut argument made for it, backed up by statistics," said Sen. Charles E. Grassley of Iowa, the senior Republican on the Senate Finance Committee.

Alan Greenspan, the Federal Reserve chairman, is scheduled to meet with that committee this morning, as part of a round of Capitol Hill sessions he began last week to counsel lawmakers on how to respond to the weak financial markets and rising job losses.

So far, they are taking his main bit of advice: Don't act hastily as an emotional response to the horror of the attacks on the World Trade Center and the Pentagon. The Fed chairman warned that injecting too much money into the economy now could cause interest rates to rise and threaten America's long-term economic health.

"It's too early to make a final judgment," said Kent Conrad, the North Dakota Democrat who is chairman of the Senate Budget Committee. "We have to first see what the dimensions of the problem are. You don't make decisions that major right after the kind of shock to the system we've had."

Part of the reason for Congress to wait at least a few weeks before acting on a stimulus package is to evaluate the effects of the steps already taken.

Those include the $1.35 trillion tax cut passed last spring, which pumped $70 billion into the economy; a series of interest rate cuts by the Federal Reserve Board; and $55 billion in emergency spending to finance recovery efforts in New York and Washington, pay for the military response and reimburse the airlines for their losses.

"If you look at what people say to do in a recession - cut taxes, lower interest rates and spend money - we've used all of them," said Sen. John B. Breaux, a Louisiana Democrat.

Breaux said he was encouraged by yesterday's sharp gains in the stock market, after the Dow Jones industrial average had suffered its worst week since the Great Depression. And he suggested that perhaps no further action by Congress was necessary.

"Let's don't legislate for the sake of legislating," Breaux said. "Let's do something that's right."

Another worry voiced by economists who met with lawmakers last week is that another round of tax cuts could drive the budget further into deficit and push up long-term interest rates.

"Most economists said to be cautious," said Rep. Benjamin L. Cardin, a Baltimore Democrat who attended the briefings with Greenspan; Lawrence Lindsey, President Bush's chief economic adviser; and Robert E. Rubin, who served as Treasury secretary under President Bill Clinton.

Bush has signaled that he is willing to consider further tax cuts. But the president, too, has said he would prefer to move slowly. Even so, stimulus proposals abound.

Many Republican leaders are pushing for a long-time favorite cause - cutting the tax rate on capital gains. Even before the Sept. 11 attacks, House Speaker Dennis Hastert and Senate Republican leader Trent Lott had argued that such a tax cut was needed to boost capital spending.

Rep. Bill Thomas, the California Republican who is chairman of the House Ways and Means Committee, began preparing a formal proposal several days after the attacks.

But business lobbyists are now promoting other alternatives to a capital gains tax cut, such as cutting the corporate tax rate and accelerating depreciation schedules.

"I'm looking for that which would move most effectively, most quickly," said House Majority Leader Dick Armey. "I think we're all saying, let's look at the options."

Other possibilities under discussion include a new round of tax rebate checks, similar to the ones mailed out in the summer, but this time directed to low-income workers who didn't get earlier checks.

Cardin said he is crafting a proposal to help laid-off workers by making it easier for them to collect unemployment benefits and by increasing those benefits, possibly by extending the 26-week limit.

Many Democrats want to include some provision for laid-off workers to obtain health insurance benefits. But that idea could face heavy resistance.

"I don't know where you end that," Grassley said. "Are you going to include hotel workers? Are you going to give farmers something?"

Some Democrats would like to offset an economic stimulus package by repealing portions of the earlier tax cut that have not yet taken effect, such as the repeal of the estate tax.

Cardin acknowledged that this would be a tough idea to sell, especially to Bush, who has vowed to resist any attempt to repeal his tax cut.

"The point is, we can't just wave the flag and say we're going to pass something," Cardin said. "We have to work through the issues."

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