Late Night Talks Yield A Deal

Capping a remarkable march through Congress, President Barack Obama’s economic recovery bill is all but assured of passage this week, after House and Senate Democrats reached agreement Wednesday on a $789 billion package acceptable to moderate Republicans in the Senate.

Senate Majority Leader Harry Reid (D-Nev.) first made the announcement after exhausted staffers worked through the night at the Capitol to draft the outlines of the deal.

Hours later, with the blessing of House Speaker Nancy Pelosi (D-Calif.), the formal House-Senate conference met Wednesday evening, setting the stage for floor action.

Going into the night, clerks were still refining portions of the massive bill, which will have an extraordinary reach in health and tax policy beyond the investments in state aid and improved infrastructure. But the goal was to have the measure filed by midnight or early Thursday, clearing the way for House and Senate passage before the Presidents’ Day recess.

Three Senate Republicans — Maine Sens. Susan Collins and Olympia Snowe and Sen. Arlen Specter of Pennsylvania — are pledged to support the package, assuring Reid of the 60-vote majority he needs to overcome budget points of order. Pelosi is firmly in control in the House, and the changes in the final talks could help her expand her margins, in fact.

The total cost and level of spending have both been scaled back from the initial $819 billion House bill, which drew no Republican support. But the GOP now expects as many as 20 or more Republicans could break ranks to back the president, and Pelosi may also be able to win back some of the fiscal conservatives in her own party who opposed the earlier version.

Pelosi and Reid, two very different personalities, worked closely to clear the last hurdles. The agreement also marked a coming of age for Obama.

To a remarkable degree, the new president was able to skirt by until this week, promoting the competing House and Senate bills and never making public his full requests for new spending and tax breaks. That changed Tuesday when his chief of staff, Rahm Emanuel, and Budget Director, Peter Orszag, became more fully involved. To speed the process, the White House agreed to scale back Obama’s own signature “Making Work Pay” tax break to relieve the strain of payroll taxes on working families.

“Basically, it is whatever Obama wants,” said one House staffer up all night sorting through Appropriations accounts. And in the face of the continued market turmoil and a troubled economy, action was a first priority for the administration.

Senate Finance Committee Chairman Max Baucus (D-Mont.) estimated that 35 percent, or $276.1 billion, of the bill would be “pure” tax cuts. The Senate preserved its provision promising continued relief for middle- and upper-middle-income taxpayers threatened by the alternative minimum tax.

But rifle-shot Senate-passed tax breaks for new car purchasers and homebuyers were scaled back to make the numbers fit. And some business tax deductions were retooled to be available only to qualified small businesses.

Most important, the administration agreed to scale back Obama’s payroll tax provision to $400 for individuals and $800 for couples — down from $500 and $1000, respectively. This was estimated to save at least $20 billion and was seen as a good faith effort to move the negotiations along.

By scaling back the bill, the White House strengthened its appeal to moderate Republicans such as Collins and also won a little more latitude about where the remaining funds would be spent.

To a point, that is.

“Like any negotiation, this involved give-and-take, and if you don’t mind my saying so, that’s an understatement,” said Reid. And down to the end, one of the president’s most prized initiatives — $16 billion for public school construction — was a bone of contention forCollins, whose vote Obama needed.

Last Friday, she had successfully eliminated all such money from the Senate bill. Wednesday she agreed to allow $10 billion as part of a nearly $54 billion fiscal stabilization fund but argued that the $10 billion should not be confined to this single dedicated purpose.

This did not sit well with the House Democrats, already resentful of the Maine Republican’s veto power over the bill. The construction funds are especially sensitive in poor, often minority school districts less able to finance new schools. And because of political tensions now in his home state of South Carolina, House Majority Whip Jim Clyburn was insistent that some protection be provided so local schools — not the state — had access to the money.

The draft compromise keeps the $10 billion in the stabilization fund as proposed by Collins. But $6.6 billion would go to public schools under the Title 1 formula that is targeted more toward poor districts. The remaining $3.4 billion could be used for state higher education institutions and community colleges.

Infrastructure spending remains a major emphasis in the bill: Collins estimated that these job-generating investments — when broadly defined — total near $150 billion, of which about a third, or $49.6 billion, is directly related to traditional highway and transit-type spending.

But a big emphasis is also on preserving some safety net for those thrown out of work by recent payroll cuts across the country. Food stamp benefits would be increased by about 13 percent, and $40 billion would be devoted to additional unemployment benefits.

A $20.4 billion program to help the jobless preserve some health insurance for their families survives but has had to be scaled back to stay within the smaller package.

The bill provides a 60 percent subsidy to help laid-off workers meet COBRA payments to maintain employer-provided health insurance. The House had proposed 65 percent; the Senate, 50 percent.

But to stay with the scaled-back spending limits, new income limits would be imposed on who can qualify for the aid, and the program would be shortened to nine months, compared with 12 months under the House bill.

Most ticklish and costly of the health issues is how to distribute $90 billion in increased Medicaid funding over the next two years.

The Senate Finance Committee, dominated by rural interests, insisted on an across-the-board distribution in most cases; the House wanted to target the money more to urban states that have been hit hardest by rising unemployment.

House Energy and Commerce Committee Chairman Henry A. Waxman (D-Calif.) said the tentative deal calls for 65 percent of the money to be distributed according to the Senate’s more rural formula; 35 percent as the more urban House wanted.