Democrats, GOP begin talks toward compromise economic stimulus plan

Thursday, November 29th 2001, 12:00 am

By: News On 6

WASHINGTON (AP) _ After weeks of stalemate, Democrats and Republicans have begun talks that could produce compromise legislation intended to jolt the lagging economy through tax cuts and assistance to the jobless.

``Hopefully, we'll get this done in the next week or so,'' said Sen. Don Nickles, R-Okla., the assistant Senate minority leader.

No agreement was reached at an initial meeting Wednesday night between House and Senate leaders and Treasury Secretary Paul O'Neill. Negotiators must first figure out a way to structure the talks under the rules because the Senate hasn't passed a bill, while the House has.

``We didn't want to get into the policy side before we had a procedure worked out,'' Hastert said.

House leaders were waiting Thursday for a response from Senate Majority Leader Tom Daschle, D-S.D., to a proposal hand-delivered by Hastert in which leaders would appoint a bipartisan group of six negotiators _ three each from the House and Senate _ with jurisdiction limited to the tax-writing committees. The result would be presented for up-or-down votes, with no amendments, the same way regular conference committee bills are handled.

``If we can't do reality, how about virtual reality?'' said the House Ways and Means Committee chairman, Rep. Bill Thomas, R-Calif.

Still, the meeting marked the first substantive effort at compromise since the GOP-led House passed a $100 billion package of mostly tax cuts on Oct. 24.

``It's more than a kick-start. Things are starting to move,'' said Senate Finance Committee Chairman Max Baucus, D-Mont.

One idea that helped ignite the talks was a proposal by Sen. Pete Domenici, R-N.M., to give workers and employers a one-month holiday from the Social Security payroll tax, probably early next year. That would allow workers and companies temporarily to keep all of the 6.2 percent tax each pays into Social Security, with $43 billion transferred from other government accounts to keep the retirement program whole.

The White House and Democrats expressed interest in the proposal, but it was not certain the idea would be in the final compromise. Most previous plans have included a new round of rebate checks targeted at workers who mainly owe payroll taxes rather than income taxes.

Rep. E. Clay Shaw, chairman of the Social Security panel of the House Ways and Means Committee, criticized the proposal Thursday as a horrible precedent that could open the retirement fund to future raids by politicians.

``Keep your hands off the payroll tax,'' said Shaw, who represents a South Florida district with a large population of senior citizens.

President Bush renewed his push Wednesday for the Senate to end its stimulus deadlock _ first at a breakfast meeting with congressional leaders and later in a speech before a farm group.

``Americans know their economy was targeted for terror, by terror, and they're asking us to fight back. And we must,'' Bush said. ``The American people expect it, and I expect it.''

One stumbling block was removed when the Senate Democratic leader, Tom Daschle of South Dakota, announced that a $7.5 billion package of homeland security spending items would not be a part of the stimulus measure but would be debated as part of the defense budget.

There is more difficult terrain ahead. Democrats generally want more assistance to the unemployed, particularly a subsidy of up to 75 percent for health insurance. Republicans insist on moving ahead to 2002 some or all of the income tax cuts now scheduled to take effect in later years.

Both sides generally agree on a 13-week extension of unemployment benefits and increased expensing write-offs for business investment. Bush also supports those items but also wants to repeal the corporate alternative minimum tax, a proposal that many Democrats oppose.

On the payroll tax holiday, some questions were raised about whether companies could make the necessary adjustments quickly enough. There were concerns about the integrity of the Social Security trust fund and what trade-offs might be necessary to include it in the package.

White House spokesman Ari Fleischer said Bush would not accept the payroll tax holiday as a substitute for accelerated income tax cuts.

``The president is a big believer in the need to cut individual income tax rates as a way to create growth,'' Fleischer said.

In 2002, the Social Security payroll tax will apply to the first $84,900 of a taxpayer's gross wages. Under Domenici's proposal, those earning more than that would be treated as if they had paid the tax during the holiday month, ensuring that all workers could get the benefit.