Stimulus Agreement Set, Votes Next

The House and Senate agree on a compromise $789 billion measure, with details still murky on what items were added and dropped in the conference committee

By Moira Herbst

Editor's Note: This is an updated version of a story originally published Feb. 11, 8:15 p.m. ET

After just one day of negotiations, Senate Majority Leader Harry M. Reid (D-Nev.) announced on Feb. 11 that the House and Senate had reached a deal on a revised stimulus plan that calls for $789 billion to be spent over two years. The bill, which represents the largest attempt to jump-start the U.S. economy in modern times, "creates more jobs than the original Senate bill and spends less than the original House bill," Reid said.

Final votes in the House and Senate are expected by the end of this week. Congressional leaders have said they want the bill on President Barack Obama's desk by Monday, Feb. 16.

The bill, which reconciled an $838 billion Senate version and an $819 billion House version, includes relief measures for unemployed and low-income Americans. Those provisions, such as extended unemployment benefits and more funding for food stamps and health coverage, are expected to stimulate the economy right away.

Infrastructure Investment

The bill also contains investment in infrastructure and renewable-energy projects, and it reinstates some of what the Senate bill had cut from the House bill in terms of funding for cash-strapped states and school construction.

About 35% of the funding in the revised bill will go toward tax relief for individuals and companies, according to Senator Susan Collins (R-Me.), one of the three moderate Republicans who voted for the original Senate bill, which passed 61 to 37. The revised bill preserves Obama's "Make Work Pay" tax cut, a break for millions of lower- and middle-income taxpayers. However, centrist lawmakers won the battle to reduce that from $500 a year for most individuals and $1,000 a year for most families to $400 and $800, respectively.

Other proposals were scaled back. A $15,000 tax credit that was included on the Senate side for all home purchases made over the next year was dropped; instead, first-time homebuyers can claim an $8,000 credit for homes bought by the end of August. An income-tax credit the Senate set for buyers of new cars that would have allowed a deduction for sales taxes and car loan interest payments was revised; the bill now allows car buyers to deduct the sales tax paid on a new car but not the interest on their car loans.

The compromise bill cut from the House plan $25 billion in funds for cash-strapped states; that State Fiscal Stabilization Fund is now at $53.6 billion. The bill also eliminated the $16 billion allocated in the House bill for school construction.

Push to Create Jobs

The aid to states was particularly contentious, with many Democrats arguing it would deliver some of the biggest bang-for-the-buck in the stimulus bill. A dollar in aid to state governments to stave off cuts in services or layoffs yields $1.36 in total economic payoff, and a dollar in infrastructure investment yields $1.59, according to an estimate by Moodys.com (MCO). That's significantly higher than the boost from tax cuts, according to some economists.

In an appearance to announce the agreement with Senate Majority Leader Reid, Collins told reporters that infrastructure spending in the new bill is robust. She said that in the final version, "we were able to increase the amount of infrastructure spending," which she called "the most powerful component in this bill to create jobs." The bill contains about $150 billion for infrastructure, including $29 billion for modernizing roads and bridges, $8.4 billion for investment in transit, and $8 billion for developing high-speed rail systems.

Advocates for the unemployed said they were generally pleased with the provisions the stimulus bills proposed to shore up aid, but were disappointed that the final bill cut a $10.8 billion provision that would have helped unemployed workers maintain health insurance.

"[The stimulus] is a huge step forward for unemployed workers," says Maurice Emsellem, policy director of the National Employment Law Project, an advocacy group for low-wage workers. "But more will need to be done." The U.S. unemployment rate swelled to 7.6% in January.

Herbst is a reporter for BusinessWeek in New York.