America's stimulus plan: Stimulus and the Senate

The Senate prepares to debate Barack Obama's stimulus bill. What will Republicans do?

BARACK OBAMA’S gargantuan stimulus bill moves to the Senate on Monday February 2nd, after passing through the House of Representatives without a single Republican vote in favour. That means that it is in trouble.

A party with a majority can usually pass whatever it likes in the House, but the same is not true in the Senate. Debates in the Senate are not rigidly time-limited as they are in the House, and in order to end discussion and move to a substantive vote, a motion of “clôture”, or closure, has to pass. The snag is that 60 votes are needed to pass such a motion; and the Democrats have only 58 senators. In theory, if the Republicans hang firm—and they held absolutely firm in the House—they could prevent the stimulus bill from ever being put to a full vote.

Will the Republicans opt to do this, given the gravity of the recession? They are in no mind to allow the bill to go through without substantial changes. The Senate Republicans, just like the House ones, believe that the stimulus bill is something of a Trojan horse. While no one disputes that a big fiscal punch is needed, many items in the current plan (which has been hastily thrown together) will take too long to deliver; at least a third of the House's $819 billion package will not have been spent 19 months from now, according to an analysis by the Congressional Budget Office.

The Republicans prefer tax cuts, which have the advantage of delivering their punch almost instantly. The problem is that in tough times like these, people are likely to save rather than spend their tax gains especially if—as in this case—the cuts are strictly temporary. Extra saving does nothing to boost demand in an economy that is suffering from a shortage of it. Republicans also object to some of the protectionist “Buy American” provisions attached to some of the money, and to inanities such as a $200m plan to returf the Mall in Washington, DC, (this last has now been removed from the House bill).

Some prominent Republican senators, including Judd Gregg of New Hampshire and Kent Conrad of North Dakota, want to seize the moment to turn the stimulus package into a broader “grand bargain”. They worry, and rightly so, that America faces budgetary meltdown, as its ageing population places unbearable strains on pensions and health-care systems. The stimulus package as currently scripted would push the fiscal deficit for this year up to some $1.2 trillion, or over 8% of GNP. If so vast a sum of money is to be spent, they argue, it should only be done in the framework of a deal that will address the long-term imbalances.

Because of the clôture rule, the Republicans have considerable leverage. If they were to choose to make passage of the stimulus conditional on an agreement to address the long-term imbalances they could force Mr Obama to give some form of undertaking. The question is, though, just what form that would take. The two senators want to see the establishment of a bipartisan commission that would draw up a programme of budget reform to be submitted to Congress for a straight up or down vote, with no possibility of amendment, since amendments would surely cause the whole thing to unravel. It is not yet clear whether this idea or anything like it would succeed.

The snag for the Republicans is that they will have to decide on whether or not to allow the stimulus package to go through long before it is clear whether any attempt to get to grips with budget reform will bear fruit. They know that many Americans are deeply concerned about the prospect of the government slipping so deeply into the red. But many Americans are deeply concerned about their jobs too. It is a tough call for the Grand Old Party.

www.economist.com