Tuesday, January 29, 2008

The train leaves the House 

The House has passed the stimulus bill.

The plan, approved 385-35 after little debate, would send at least some rebate to anyone with at least $3,000 in income, with more going to families with children and less going to wealthier taxpayers.

It faced a murky future in the Senate, though, where Democrats and Republicans backed a larger package that adds billions of dollars for senior citizens and the unemployed, and shrinks the rebate to $500 for individuals and $1,000 for couples.
Now we know why President Bush said in the SOTU last night that
...my administration reached agreement with Speaker Pelosi and Republican Leader Boehner on a robust growth package that includes tax relief for individuals and families and incentives for business investment. The temptation will be to load up the bill. That would delay it or derail it, and neither option is acceptable.
So what is that point about? Just that the Senate wants to bust that agreement.
Expanded unemployment insurance appears to have a good chance of being added in the Senate. This element was dropped from the House package under a deal House Speaker Nancy Pelosi (D., Calif.) made with House Minority Leader John Boehner (R., Ohio) to get tax rebates for millions of people who don't earn enough to pay income taxes.

Another change being discussed in the Senate would expand eligibility for rebates to about 20 million senior citizens who don't qualify under the House plan. Senate Finance Committee Chairman Max Baucus (D., Mont.) and others on his committee have raised concerns about this group being left out because they lack the $300 in income-tax liability or $3,000 in wages required to get rebates under the House plan. Expanded eligibility would require other modifications to keep the package under the $150 billion limit.

On the Republican side of the aisle, some senators would rather not have an upper-income limit on who could receive rebates, an element of the House plan that Democrats there say is essential. In addition, many senators are pressing for expanded funding for food stamps, which was dropped in the House negotiations, as well as aid to states and spending on public-works projects. There's also a push in the Senate to expand business tax breaks, particularly to let companies carry back operating losses from this year, to gain refunds on previous tax bills.

Senators appear to favor the increase in loan limits for Fannie Mae and Freddie Mac in the House package, as well as modifications to the Federal Housing Administration.

There are arguments for some of the Senate provisions (see for example Menzie Chinn's support for the extended unemployment benefits) but I think the arguments are mostly secondary. What appears to be clear is that the $146 billion is where the bidding has stopped and if so I doubt the remaining issues will prevent this bill from reaching Bush before the stated deadline of Feb. 15.

Of course, if tomorrow's Q4 GDP number is negative, we may see an attempt to increase the size of the bill. As Chinn notes, there's a notable lack of demand for U.S. assets overseas, and pushing up U.S. rates by expanding the deficit would be counteraction of the Fed's moves.