On Monday, February 4, the Senate is expected to vote on an economic stimulus package that was approved by the Senate Finance Committee earlier this week and which includes tax rebate checks mailed out to households as early as May. The more limited House stimulus bill passed on Tuesday reflects a compromise made between House Speaker Nancy Pelosi, House Minority Leader John Boehner and the Bush administration. Democratic leaders in the Senate say enough Republicans will vote for the more generous version to overcome the 60 vote hurdle to approve legislation in their chamber. Failing that, the Senate would likely approve the House-passed version.
Senate Version Sends More Money to People Who Will Use It to Stimulate the Economy
While both versions of the bill include tax incentives for business that have questionable value as a stimulus, over two thirds of the revenues spent in each bill go towards tax rebates for households.
The rebates in the House version would be lower for working people who pay federal payroll taxes but who do not earn enough to pay federal income taxes. Anyone with at least $3,000 in earnings would get a rebate of at least $300 ($600 for couples). Anyone who has tax liability above $300 ($600 for couples) would get a rebate equal to that tax liability, up to a maximum of $600 ($1,200 for couples). The Senate version would simply give all of these taxpayers a $500 rebate ($1,000 for couples). This is probably better as a matter of both fairness and as an effective stimulus, since people at the lower end of the income ladder are more likely to immediately spend any money given to them, pumping it immediately into the economy, boosting demand. Both bills also provide an additional $300 for each child.
The Senate version also takes two other steps that target more money towards the people most likely to spend it right away. First, the $3,000 income threshold for eligibility in the Senate version can be met with both earnings and Social Security, meaning many elderly people and people with disabilities who live on fixed incomes will receive rebates who would not under the House version. Second, unlike the House bill, the Senate version extends the maximum length of unemployment insurance benefits from 13 weeks to 26 weeks, providing a benefit for those who both need it the most and are more likely to spend it quickly.
Senate Majority Leader Nearly Gags
When Senate Finance Committee Chairman Max Baucus (D-MT) first introduced his proposal, most Democrats in the Senate and, reportedly a number of Republicans, were pleased because it looked like a more comprehensive and effective way to ward off a recession. However, in a move that did not please many Democrats, Baucus did away with the provisions to cap eligibility for high-income people, which is included in the version worked out between House leaders and the Bush administration. Senate Majority Leader Harry Reid (D-NV) said this provision "causes me to want to gag," a sentiment that was largely reflected in comments from other Democratic Senators as well.
During the markup of the bill in the Finance Committee, Senator Baucus added provisions that phase out the rebate for taxpayers with incomes above $150,000 ($300,000 for couples). The income limits in the House version are only half as high. But as the Center on Budget and Policy Priorities argues, the Senate bill is still far more progressive overall because of its other provisions.