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House Approves Economic Stimulus Package

On October 24, after three hours of partisan and contentious debate, the House narrowly approved, 216-214, legislation (H.R. 3090) designed to provide a boost to the weakened economy. Seven Republicans, including Reps. Greg Ganske (R-IA), Ray LaHood (R-IL), Jim Leach (R-IA), Jack Quinn (R-NY), Connie Morella (R-MD), Nick Smith (R-MI), and John Thune (R-SD), voted against the bill; three Democrats, Reps. Ralph Hall (D-TX), Ken Lucas (D-KY), and James Traficant (D-OH), voted in favor of it.

Sponsored by House Ways and Means Committee Chair Bill Thomas (R-CA), the bill would provide $99.5 billion in FY2002 to stimulate the economy, and $159 billion over the next 10 years. The measure includes a $3 billion block grant program to states for assistance in providing health insurance for the unemployed and $9 billion in surplus federal unemployment funds to help states provide expanded unemployment benefits and retraining programs.

The stimulus package would incorporate several provisions of importance to women and their families, including a tax rebate for low-income workers, an accelerated phase-in of the 25 percent marginal tax rate for middle-income families, an extension of the Work Opportunity Tax Credit and the Welfare-to-Work Tax Credit, and an expanded exception from the early withdrawal tax for health insurance expenses for the unemployed.

The House bill would provide tax rebates to wage-earners who received only a partial rebate, or no rebate at all, under the $1.35 trillion tax package (P.L. 107-16) signed into law in June (see The Source, 6/8/01, p. 1). Individuals would receive up to $300, single heads of households would get up to $500, and married couples would be eligible for up to $600.

Under the new tax law (P.L. 107-16), the 28 percent tax rate was reduced to 27 percent in July, and is scheduled to be reduced to 25 percent by 2006. The House measure would reduce the 27 percent tax rate to 25 percent beginning in January of 2002.

Current law allows an unemployed individual to withdraw money from an Individual Retirement Account without paying a 10 percent early withdrawal penalty if that individual has received state or federal unemployment insurance for at least 12 weeks, and if the withdrawn amount does not exceed the amount paid for health insurance by that individual during the year. The House bill would expand the exemption to apply to unemployed individuals who receive up to four consecutive weeks of unemployment insurance between September 11, 2001 and December 31, 2001. The bill also would allow the exemption to be applied to withdrawals from qualified retirement plans, such as a 401(k), or a section 403(b) tax-sheltered annuity plan.

The Work Opportunity Tax Credit (WOTC), which is scheduled to expire at the end of this year, allows employers to take a tax credit of up to $2,400 for hiring individuals from certain targeted groups, including families who receive benefits under the Temporary Assistance for Needy Families program, families who receive food stamps, and high-risk youth. The House bill would extend the WOTC for two years.

The bill also would extend for two years the Welfare-to-Work Tax Credit, which allows employers to take a tax credit for wages paid to long-term welfare recipients during the first two years of employment.

Debate on the House floor was heated at times, with Democrats criticizing the bill for helping corporations rather than individuals who have lost their jobs, and Republicans insisting that their bill would reduce job layoffs.

Rep. Nancy Pelosi (D-CA) called the bill “a shameless package which gives $10.4 billion in ill-timed capital gains cuts.” She declared, “It gives $53.6 billion tax cuts to the wealthiest Americans and, are we ready for this? It gives a $24 billion retroactive to 1986 tax cut on the Alternative Minimum Tax, and 86 percent of this benefit goes to the wealthiest Americans.”

Speaking in support of the bill, Rep. Nancy Johnson (R-CT) called it “a bill that is about people.” She said, “I think it both secures current jobs, will lay the groundwork for bringing people back into jobs they had recently, and will open up new job opportunities through all of the provisions that stimulate growth in the economy.”

The House rejected, 161-230, a $110 billion Democratic alternative that also would have provided tax rebates for workers who did not earn enough money to qualify for rebates earlier this year. The Democratic proposal would have extended unemployment benefits for an additional 26 weeks, and would have created a one-year, temporary program to provide 75 percent of the cost of COBRA coverage for eligible displaced workers and their families. Additionally, the plan would have provided assistance to states to offer Medicaid coverage for low-income workers who are not eligible for COBRA.

The House also rejected, 199-239, a motion to recommit the bill to the Ways and Means Committee to require the measure to include new spending for security and for the war against terrorism before enacting more tax cuts.

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