Senate panel approves economy plan

NEW YORK (CNNMoney.com) -- The Senate Finance Committee on Wednesday approved a proposal intended to curb a further slowdown in the economy.

The proposal, which differs from a bill overwhelmingly approved Tuesday by the House, could be introduced as a bill and voted on by the full Senate as early as Thursday. Lawmakers are aiming to send final legislation to President Bush by Feb. 15.

The committee meeting took place the same day that the government issued a report that economic growth in the last quarter of 2007 was weaker than expected and the Federal Reserve cut a key interest rate another 50 basis points following its emergency move last week that lowered the federal funds rate by 75 points.

The House bill would give one-time tax rebates primarily to individuals making less than $75,000 and to married couples making less than $150,000. It would also provide temporary tax breaks for businesses and contains two measures aimed at helping homeowners get or refinance mortgages.

Senators weren't shy about coming up with a laundry list of changes to the House-passed package and to a lead Senate proposal put forth by Finance Committee Chairman Max Baucus, D-Mont., earlier this week. But most of those changes were not approved by the Finance Committee or brought up for a vote on Wednesday.

A modified version of Baucus' proposal got the committee's approval, but some key measures may still face resistance in the Senate and the House.

Temporary extension of unemployment benefits. The committee supported offering at least an additional 13 weeks of unemployment benefits, a provision that was left out of the House bill and is opposed by many Republicans.

But on Wednesday, the top Republican taxwriter, Finance Committee Member Charles Grassley, R-Iowa, said he would back extending benefits "to keep a bipartisan package together."

Many economists have come out in favor of the measure. Mark Zandi, chief economist of Moody's Economy.com, estimates that the economy would see a return of $1.64 for every dollar spent on unemployment benefits.

Others aren't so sure. Harvard economist Martin Feldstein, who heads the National Bureau of Economic Research, said evidence suggests that extending unemployment benefits tends to discourage people from taking a job.

Rebates for seniors. The Senate proposal also expands the rebates offered in the House package to include 20 million seniors living on Social Security. Under the House plan, only tax filers with at least $3,000 of earned income would qualify.

The Senate proposal would also offer rebates to 250,000 disabled veterans who wouldn't qualify for them under the House plan.

Rebates for higher income households. The original Senate Finance Committee proposal would have given rebates to most households, regardless of income. The House bill imposes income caps.

The Senate provision was modified to include income caps but at a higher level than those in the House bill. Under the Senate proposal, tax rebates would be phased out for individuals making more than $150,000 and for couples making more than $300,000.

Increased funding and scope for mortgage bonds. One addition to the Senate proposal was introduced by Sen. John Kerry, D-Mass., and Sen. Gordon Smith, R-Ore. They want to see a provision in any stimulus bill that would increase federal funding for state and local housing agencies to offer municipal mortgage bonds to subsidize home loans. President Bush said in his State of the Union address on Monday that he supported such an idea.

The proposal would give more money to housing agencies and let them use it to subsidize the cost of mortgage refinancing for subprime borrowers. The agencies use the revenue derived from the sale of the bonds to subsidize the cost to consumers of mortgages they get from private lenders. Under current law, they can only do so for first-time home buyers or home buyers purchasing property in distressed areas.

Endgame. Democrats and Republicans realize they have to compromise to get a stimulus package passed quickly. But many of the measures that are excluded could end up being approved later in a second stimulus bill.

"I think we have to look, not within a matter of months, but within a matter of weeks, to make sure that what doesn't get taken care of in this short-term stimulus package we have an opportunity to legislate on," said Senate Majority Leader Harry Reid, D-Nev.