Democrats in Congress Push for a New Stimulus Package to Jumpstart Ailing Economy

Why part with billions now, either by increasing spending or lowering taxes, as the nation's debt nears $10 trillion and storm warnings say conditions will worsen as baby boomers retire and gobble up entitlements? Leading Democratic economist Joseph Stiglitz, part of Pelosi's team of experts, says that most economists believe the recession could be deeper and longer than had been thought. "The economy has been weak since the beginning of 2008, and we should think of recovery in 2010, not 2009," he says, "and that would be optimistic."

Stiglitz, a professor at Columbia University and veteran of the Clinton administration, compares a stimulus to medicine, saying some should be curative to help the economy bounce back and some preventive to stop it from worsening. Using the gross domestic product as a benchmark, he says that spending 2 percent—or $300 billion to $350 billion—is the minimum needed over two years.

More broadly, experts say a stimulus works best when it's timely, targeted, and temporary. One rule of thumb: Money given to the poor tends to be spent rapidly, while better-off households are more apt to retrench in uncertain times.

An immediate concern is the fiscal crises in dozens of states, which are closer to the front lines of the ongoing foreclosure mess and slammed by declining income and sales tax revenues. Thirty-six states are facing cumulative budget gaps in fiscal 2010 in the range of $100 billion, according to the Center on Budget and Policy Priorities in Washington. The liberal-leaning center backs giving $50 billion to the states now, up to $35 billion of which would go to Medicaid for the poor.

Boehner and the GOP favor tax cuts to resuscitate the economy. "If Congress is going to take action, it should be through fast-acting tax policy that boosts incentive to invest and create jobs. That is the growth dynamic that leads to a bigger economic pie," says Rep. Paul Ryan of Wisconsin, the top Republican on the House Budget Committee. A stimulus would only transfer money from one part of the economy to another, Ryan insists.

At the conservative Heritage Foundation, its top number cruncher, William Beach, says making all or most of President Bush's tax cuts permanent would stimulate investment. He argues that investors need certainty about the outlook and says tax increases, especially if they land on capital, increase the cost of capital and lower investment returns.

How this drama plays out will depend on both President Bush and his successor. There's talk of 11th-hour horse trading. One sweetener that Pelosi could offer skeptical Republicans is approval of the Colombia Free Trade Agreement, a key Bush initiative. Lawmakers could manage to pass a major stimulus bill or merely stopgap legislation that leaves the heavy lifting to the new Congress, which meets January 6. "This is a unique crisis," say political scientist James Thurber of American Univer-sity. "I think Congress will move on a stimulus package in late November, with advice from the next president."

One thing is certain: Members of Congress, with approval ratings in the teens, even lower than Bush's, are being bombarded by constituents mad as hell about disappearing jobs, a wildly fluctuating stock market, and hemorrhaging 401(k) accounts. That suggests they will do something sooner rather than later. But the big unknown is whether whatever package they assemble will be strong enough medicine.