US Treasury Sec'y O'Neill has been out in front this week as an administration voice trying to shape the parameters of the Hill debates (trying to keep the lid on some proposals that could have long-term costs for the budgets several years out).    It will continue to be a delicate balance, as the administration is looking to get a final bill by the end of next week and get money into pockets in time for the end of the year.  

Fed Chair Greenspan could also critically affect the debate tomorrow in testimony before the Joint Economic Committee: his core belief is that whatever the precise stimulus number arrived at, it should be primarily temporary in character.  His preference under current conditions is for security and fiscal policy to be the response instruments in the face of the diminishing returns to and efficacy of further rate reductions in the face of uncertainty.  

Competitive Analysis will continue to follow this issue closely and welcomes feedback and further specific questions on the issues below.  Please contact Brendan Fitzsimmons at x5-4763 with further questions.

Enron Global Markets
Competitive Analysis

HILL STIMULUS BILL UPDATE: 10/16/01

Partisanship is the Question for Senate Battle: Final Stimulus Bill Likely in the $80-110B Range, but Hill Dems' and Repubs' aims could push it northward

SUMMARY
Senate numbers look set to exceed Bush figures ($60-75B), may approach House Ways and Means $100B; final conferenced bill could hit $140B; all on this on top of the special $55B approved right after the attacks for airlines and immediate impact areas
Republican plan, so far, all tax cuts and no spending
Democratic plan has a lot more spending, but it is all on supporting people who have lost their jobs and none of it is on infrastructure
Final, conferenced bill may run as high as $140B if the 'neglected' middle-class is given another rebate check (up to another $38B)
One major question hanging over size, composition and speed of the Senate package is whether Senate Maj. Leader Daschle decides to move quickly toward a bipartisan Senate package that tries to isolate the House Republicans and their business tax cutting agenda
Daschle will present dilemma to President Bush and his senior advisers. "We will tell the president that we need assurance from the White House that compromises we make will be supported by the White House. If Bush can't give that assurance - unable to control the right - then we will probably opt for the more partisan position."

REPORT
The centrifugal pull of a big number like $100B proved the main attractor in early action on the stimulus front.  House Ways and Means Committee votes approved a tax cut package - mainly for businesses - that added up to just about exactly that number.  The Senate will produce something a little smaller, but the handwriting is on the wall as the two houses of Congress move toward a Conference Committee package that could easily top that total.

One key member of the Senate negotiations told sources late Sunday: "We are working on a package designed to stay with the principle that everything should be temporary and roll off after one year to avoid blowing through budget surpluses later.  Right now we are still aiming to stay in Bush's $60B to $75B bracket, but everyone knows the final number will go up from there."
 
Although Senate process is controlled by Democrats, Senate Finance Committee Chairman Baucus (Dem) is in a highly contested re-election campaign next year in a deeply Republican state.  Just as he did with the earlier Bush tax cut plan, you can expect him to reach out to work with senior Republicans (such as Grassley) despite the wishes of more partisan members of the leadership.

Likely elements of the Democratic Senate package:
Rebates for those who pay payroll taxes but did not get the first $300 or $600 rebate. This was also in the House Republican package.
Temporary investment incentive for businesses - this could easily be 30% - but they will keep it to one year.
Some form of extending the loss-carryback for businesses and allowing one-year use of AMT credits in 2002. The loss-carryback is quite likely because of the relatively small 10-year costs. For Democrats AMT is more complicated. (see below)
Some form of expanded unemployment insurance incentive - not just extending the number of weeks, but other elements to expand who is eligible.
50% rebate for unemployed workers who pay for extended health care benefits through the COBRA program.
 
Partisanship Question: 
There are a series of senior Democrats who argue that an early compromise could be a major mistake since House Republicans will simply "pocket the concessions we make toward Republican-style tax cutting and press on with their business tax cutting agenda during the conference committee." In other words, does Daschle position the Senate Democrats for the bipartisan high road after this bill is passed or does he position Democrats for the partisan wrangling that seems very likely all the way to conference committee later this month.
 
Looking forward to the final, conferenced bill:
Sorting through various proposals, sources suggest a possible solution agenda:
Rebate for bottom 34 million payroll taxpayers
30% expensing for 12 months (maybe compromise of 18 months)
Five year net-loss carry back Unemployment insurance extension and some expansion -- maybe through help directly to states (more Rep. Governors may like that) and some COBRA assistance.
Repeal of Corporate AMT (or several-year suspension) as concessions to House Republicans (Dems go along but say it will be a big mistake)
Odds and Ends from Appropriators (energy assistance, food assistance, etc)

All of this comes to around $100 billion.  Although the numbers have gravitated steadily northward, there is one major decision to be made that could add another $40 billion to the total (bringing the final stimulus package to something like $120-$140B): More Rebate Checks

Both House and Senate agree there should be a rebate for those workers who did not get the earlier rebate because they did not earn enough to pay income taxes (that's the bottom 34 million).   But it would be highly unlike this - or any - Congress to pass stimulus legislation that helped the bottom 20% and the top 2% (through major business tax cuts), but left the 75% in the middle out of the equation entirely.  One solution could be to send another rebate to everyone: another $38B