Beyond a stop-gap, stimulus plan is a redefining moment

WASHINGTON - With Congress moving closer to adopting a $820 billion stimulus package and the Obama administration poised to unveil a new bank bailout plan, economists say that the federal government is taking its biggest role in the economy in a generation.

States that once aspired to blaze trails independent from Washington are turning to it for funds; banks and businesses that once decried regulation now are seeking federal capital, grants or tax cuts, and individuals are looking for tax relief.

"This is a seismic shift in the role of government in our society," said Allen Sinai, chief global economist for Decision Economics. "Those who believe the government can be an effective, positive instrument for good will have another chance to try it," said Sinai, a political independent.

While economists remain divided on the role of government generally, an overwhelming number from both parties are saying that a government stimulus package -- even a flawed one -- is urgently needed to help prevent a steeper slide in the economy.

Many economists say the precise size and shape of the package developing in Congress matter less than the timing, and that any delay is damaging.

"Most of the things in the package, the big dollar amounts, are things that are pretty quick stimulus and need to be done," said Alice Rivlin, who was former President Bill Clinton's budget director and who criticized aspects of the proposed stimulus in congressional testimony two weeks ago. "Is it a perfect package? Of course not. But we're past that. Let's just do it."

Economists who initially rejected the need for fiscal stimulus have warmed to the idea, too. Three or four months ago, Alan Viard, a Bush administration economist now at the American Enterprise Institute, thought the right size for a government spending bill was "probably zero." But now Viard shares the view that a stimulus package is needed, although he would prefer one limited primarily to tax cuts and direct benefits for victims of the recession.

House, Senate take differing approaches

Both chambers of Congress have settled on stimulus packages with about $820 billion of tax cuts and spending increases.

The House puts greater emphasis on helping states and municipalities avoid wide-scale cuts in services and layoffs of employees, while the Senate cut $40 billion of that type of aid from its bill.

The Senate plan, reached in an agreement late Friday night between Democrats and three moderate Republicans, focuses more heavily on tax cuts, provides far less generous health care subsidies for the unemployed and lowers a proposed increase in food stamps. To help allay Republican concerns about cost, the Senate proposal even scales back President Obama's signature middle-class tax cut.

The Senate proposal also protects millions of taxpayers from the bite of the alternative minimum tax (AMT) while slashing the amount of aid to ailing states for education spending and school construction that the House included in its plan.

President applies pressure for a vote

Obama on Saturday welcomed the Senate compromise on a stimulus plan and exhorted Congress to hurry to finish work on the legislation.

Despite Obama's plea, this week promises more haggling over the package. The Senate is expected to pass its version Tuesday, but then leaders must reconcile sharp differences with the House on a number of issues. That could make it difficult for House and Senate negotiators to meet Obama's revised goal of having a measure in place for his signature by the Presidents' Day break, which begins this weekend.

The main fight is likely to be over the Senate's proposal to cut $40 billion from proposed aid to states. Such aid does not necessarily lift the economy, but it prevents states from carrying out cuts that could make the recession worse, and the money can be deployed quickly.

Republicans voice criticism

But during the Senate's rare Saturday session, Republicans delivered some of their harshest criticism of Obama since he took office, suggesting that he was pressuring Congress to act in an irresponsible fashion.

"In discussing with the American people his approach to the stimulus of our economy, he has first really used some dangerous words," said Sen. Jon Kyl of Arizona, the No. 2 Republican. Kyl added, "It seems to me that the president is rather casually throwing out some careless language."