Stimulus Bill Takes Body Blow

The clock is ticking on the economic stimulus package, but with the House passing a plan Thursday morning that appears doomed in the Senate, observers are increasingly worried there will be no relief by Christmas.

That wasn't the message being sent Wednesday morning by President Bush after a meeting with lawmakers in Washington. Bush sent a charge into the stock market at a press conference when he said he'd garnered enough support to pass the bill. But only minutes later, Senate Majority Leader Tom Daschle, a Democrat, refuted the claim, saying the current proposal was unacceptable.

Early Thursday, the Republican-led House passed a $90 million measure after talks on compromise legislation broke down. While a majority of the Senate probably backs the bill, it will need a 60% majority to navigate various procedural hurdles, making passage in its current form doubtful.

Impasse

"A bad deal is worse than no deal at all," Tom Daschle said at a news conference. He added: "We're disappointed that we've not been able to achieve our goal, but we're going to stay at the table for as long as it takes to get this job done, as long as our Republican colleagues will continue to talk."

Lawmakers are fighting over health care for unemployed workers. Republicans want to give laid-off workers a refundable tax credit, which they could use to purchase insurance benefits themselves. But Democrats favor a subsidized program, whereby laid-off workers could make use of employer-provided policies.

"We regret very much that our Republican colleagues, at least so far, have refused to come to the table to negotiate seriously on health and unemployment benefits," Daschle said Wednesday. "We have come more than halfway in meeting our Republican colleagues on an array of tax questions that they have said were important to them."

Stock futures and bond prices were both lower Thursday morning on news of the House passage. The 10-year Treasury note was recently down 13/32 to 99 8/32, yielding 5.10%.

Maybe Never

Some economists doubt a package will be passed at all. "For two and a half months, we have been consistent bulls on enactment of an economic stimulus bill," said Kim Wallace, chief political strategist at Lehman Brothers, in a research note Monday. "However, momentum is leaning toward failure to agree on legislation."

In October, the Republican-led House passed an economic stimulus bill. But since then, it has been revised with the hopes of passing the Senate. The latest version provides 13 weeks of unemployment benefits to workers laid off since March and rebates for taxpayers who take the benefits this summer. It also includes a depreciation bonus, which gives businesses a three-year window to write off 30% of new investments.

"If the deal falls apart, it's a negative for stock investors," said Greg Valliere, chief strategist of Charles Schwab's Washington research group, "because tech companies would benefit from a depreciation bonus." If the bill fails to pass before Friday, Valliere thinks congressional leaders will try to revive it for passage later in the winter. "A wait-and-see scenario," he said, "could result in the freezing of purchases for new equipment."

The depreciation bonus is seen as one of the most critical parts of the package for the stock market. But whether it will in fact trigger business investment is a matter of debate among strategists. "It's not clear companies with already high depreciation costs would take advantage of the tax break," said Wallace. "There's also no credible way to predict that they would invest the money in people and machines."

In the end, Wallace sees a failure of the stimulus package as a nonevent for the market. "While some investors likely will react negatively to news of final breakdown in chances for enacting a stimulus bill," he said in his research note, "our sense is that the headline effect will dissipate quickly as investors focus on more macroeconomic trends -- companies' 2002 capital investment budgets and earnings."