Congress wants to jolt economy - again

Democrats outline proposals, including jobless benefits, to counter downturn. President Bush wants to give the first stimulus law a chance to work.

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By Jeanne Sahadi, CNNMoney.com senior writer

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NEW YORK (CNNMoney.com) -- Democratic leaders are signaling that they will launch a spring offensive on the economy by pushing for measures aimed at creating jobs and providing relief for Americans struggling financially.

The effort, which has started taking shape in the past week, comes just two months after the first stimulus package was enacted and a few weeks before the IRS will start distributing one-time tax rebates to more than 130 million households. The push is set against the election-year backdrop of a national economy that is showing increasing signs of strain and even recession.

So far, President Bush isn't on board. He has said repeatedly he wants to give the first package a chance to work before considering other measures.

Most policy analysts believe the Democrats face long odds in getting a full-blown standalone stimulus package through both chambers of Congress - at least not before summer and not before lawmakers pass a housing stimulus bill. But they say the odds are better than even that one or two stimulus measures could be attached to other bills.

The provision most likely to pass is an extension of unemployment benefits, which are usually capped at 26 weeks. One bill being considered by the House Ways and Means Committee this week calls for a 13-week extension plus an additional 13 weeks in states with high unemployment, defined under the bill as 6% or more.

A similar measure was taken out of the first bipartisan stimulus package. But since then unemployment has gone up to 5.1%, and supporters note that 1.3 million people have exhausted their benefits in the past six months and 3 million will do so in the next year.

"Extended jobless benefits immediately boost the economy while also providing targeted relief to struggling homeowners and those communities hit hardest by the foreclosure crisis," said Maurice Emsellem, policy co-director for the National Employment Law Project, in testimony before a Ways and Means subcommittee last week.

Emsellem cited estimates that for every dollar spent on extended benefits, the economy would see a return of $2.15. Others, including Mark Zandi, chief economist at Moody's Economy.com., estimate the return would be $1.64 in spending.

Those who oppose such a measure note that a 5.1% unemployment rate is still low by historical standards and contend that some studies show that extending benefits can result in longer periods of unemployment by encouraging people to stay out of work. Supporters of the measure counter that other studies find that the duration of unemployment may be attributable to other factors, and that those who receive extended benefits often end up with jobs that have better pay and benefits.

Economists say that extended benefits can cut two ways: They can generate more consumer spending, but if they keep people out of work longer, they can mute economic stimulus.

"[It] would lower earnings and total spending," said Alex Brill, a research fellow at the American Enterprise Institute, in testimony at the House subcommittee hearing.

The extension of unemployment benefits has its best shot at passing if it's the only stimulus measure added to a foreclosure prevention and housing stimulus bill, which the White House will be under pressure to sign, said Alec Phillips, a policy analyst at Goldman Sachs.

Also, the White House might feel pressured to extend benefits if the unemployment rate rises above 6% in the next few months or if a major financial event - such as a big corporate bankruptcy - shakes the markets, said Andrew Parmentier, a managing director and policy analyst for Friedman, Billings, Ramsey & Co.

Infrastructure spending

Another stimulus measure that Democrats have been advocating for is infrastructure spending.

"A small amount of money for road resurfacing can be done easily without planning or design," Phillips said. And that can create jobs.

But the odds of that happening this year or of a lot of money being spent on it are less likely in light of the upcoming debate on renewal of the Federal Highway Spending Authorization Act, which will provide federal funds for road and bridge repair.

The Democrats are "going to make every effort to rebuild the middle class balance sheet by creating more blue-collar jobs," Parmentier said. "The infrastructure component will be the nucleus of that effort."

An infrastructure measure is also likely to get tied up in the tug of war that marks any big spending bill, and lawmakers will target funding for their home districts and states.

"You get into fights over who gets what," said Clint Stretch, managing principal of tax policy at Deloitte Tax.

Stimulus grab bag

A few other measures seen as possible stimulus candidates: an increase in food stamp payments and a second tax rebate for low- and middle-income Americans, especially those who may not have qualified for the maximum rebate in the first package. The theory is that people who need a rebate most will be most likely to spend it - and thus to juice the economy.

But the fact that housing is one of the main causes of the downturn could alter lawmakers' thinking on the need for direct consumer spending stimulus.

"There is a sentiment that the $10 billion or $15 billion [that could be spent on a fiscal stimulus measure] might be better targeted to something housing-related," Phillips said.

Deficit hawks will also be on guard against efforts by lawmakers to slip in measures under the guise of stimulus, the cost for which typically isn't offset by other provisions.

Said Stretch: "Part of the dynamic here is that as long as 'stimulus' can get stamped on it, that lets [lawmakers] get away from the budgetary obligation to pay for it." To top of page

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