Democrats fret over Bush stimulus plan

$600 billion package would swell deficit and hurt economy, critics say

January 07, 2003|By Julie Hirschfeld Davis | Julie Hirschfeld Davis,SUN NATIONAL STAFF

WASHINGTON - As President Bush unveils his economic stimulus plan today, some lawmakers and analysts are expressing concern that the costly measure might swell the budget deficit and hurt the economy in the long run.

Republican leaders are bracing for the task of persuading "deficit hawks" in their party, who favor preserving a balanced budget, to back the $600 billion growth plan.

"One of the bigger challenges we face early on is trying to convince people that, `No, this is all right, we will be adding to the deficits in the short term, but over the long term we will have greater growth,'" said G. William Hoagland, the top budget adviser to the incoming Senate majority leader, Bill Frist, a Tennessee Republican. "It is going to be a real tough sell job."

In a speech in Chicago today, Bush will begin pitching what aides call a "growth package." It would combine a repeal of the tax on corporate dividends paid to stockholders - at a cost of $300 billion - with lower tax rates, breaks for business investment, grants to states and an extension of jobless aid.

But Democrats began criticizing the package as they unveiled their own $136 billion plan.

Like the Republicans, the Democrats would extend unemployment benefits and send money to the states. But the Democrats would tailor something specifically to low- and moderate-income Americans: a one-time $300 tax rebate. The Democrats argue that Bush's package is skewed toward the wealthiest and would bust the federal budget for years to come.

"The worst thing that you can do in your personal life, in your family life or in the country's life is to make a decision which looks great short term and is disastrous long term," said Rep. David R. Obey of Wisconsin, the senior Democrat on the House Appropriations Committee. "That's what the president does with his package, and that's what we try to avoid."

All sides acknowledge that enacting additional tax cuts and spending measures will further burden the federal budget, which the Congressional Budget Office estimated last year was already laboring under a $145 billion deficit for 2003.

The budget analysts projected that the government - facing rising costs for Social Security, Medicare and Medicaid - would run deficits through the 2005 fiscal year. Adding to the load are the costs of the war on terrorism - both for homeland security and the war in Afghanistan - and a possible war with Iraq.

The difference of opinion is about whether deficits are a necessary price to pay to fuel the economy. Democrats and some fiscally conservative Republicans say they should be avoided and that Congress should enact a fast-acting, temporary stimulus package.

But the White House and its congressional allies argue that the only way to stimulate growth and ensure surpluses over the next decade would be to tolerate slightly larger deficits today.

"A lot of people, I think, have their eye on the wrong ball," said Rep. Pat Toomey of Pennsylvania, a member of the Republican Study Committee, a group of conservative House members. "They get obsessed with the short-term effect on the federal ledger, when the attention should be on the effect on families' budgets and the long-term health of the economy. I think the first priority is, you get the economy growing at its maximum sustainable growth level, and if you do that, everything else takes care of itself."

Far from increasing deficits in the long run, Bush and his allies say, a hefty growth measure will spur the economy, which, in turn, will generate more government revenue.

It is on spending, Bush argues, that restraint is needed. He wants Congress to curb expenditures as it finishes the spending bills it left incomplete last year.

"Our administration is concerned about deficits, and the way to deal with deficits is, you want to control spending," Bush said yesterday. "And I hope Congress lives up to their words. When they talk about deficits, they can join us in making sure we don't overspend."

But Democrats and some analysts argue that a package of the size Bush is proposing will worsen the budget picture. They say the administration, with the help of the new Republican-led Congress, is abandoning fiscal responsibility with its stimulus measure.

"It's one of those things where the sense of fiscal discipline is gone," said Robert L. Bixby of the Concord Coalition, which advocates fiscal responsibility. "Anybody with a particular cause to push here is tacking it on to the stimulus."

The philosophical argument over long-term fiscal discipline rages on as the two parties differ strikingly over which Americans should benefit most from the stimulus legislation.

The measure Democrats introduced yesterday would cost $136 billion this year - though they say it would amount to only $100 billion over the next 10 years because of economic benefits that would be recouped.

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