Obama’s olive branch met with skepticism

By Lisa Mascaro

Wednesday, Jan. 28, 2009 | 2 a.m.

President Barack Obama came to the Capitol on Tuesday to break bread with Republicans over his economic recovery plan, but his appearance did not win over Nevada’s two Republican lawmakers.

Sen. John Ensign said the spending proposed in the recovery package for Nevada and other hard-hit states is “obscene.” He would prefer more corporate tax cuts.

Republican Rep. Dean Heller pledged afterward to return to his office to review the economic package. But he doubted he would vote for it.

Economists are in overwhelming agreement that a vast rescue plan is needed. A new report shows the

$825 billion American Recovery and Reinvestment Act would save or create

4 million jobs and bring the unemployment rate down by 2.2 percent by the end of 2010.

Nevada is among the states that would benefit the most, according to an analysis touted by Democrats and written by a former adviser to Arizona Republican Sen. John McCain.

It says that the recovery package would retain or create 62,580 jobs in Nevada by the end of 2010, lowering the unemployment rate by 2.1 percent. Without federal intervention, the state’s now 9.1 percent unemployment rate will continue to climb.

Construction workers would see the biggest benefit nationwide, as money goes to build roads, renovate schools and develop renewable energy, according to the analysis by Mark Zandi, chief economist at Moody’s Economy.com and adviser to McCain’s presidential campaign.

Nevada would especially benefit, Zandi said. The construction industry has suffered from the housing bust and building slowdown on the Strip.

Nevada’s core industries of gaming and tourism would get a boost as people nationwide have more money. “Employment in the retail and leisure and hospitality industries, including restaurants, is lifted by the stimulus,” Zandi wrote.

The skepticism among Nevada’s Republican lawmakers comes as many members of Congress feel burned by the $700 billion Wall Street bailout the Bush administration rushed them to approve last year. Much of the money spent so far is not being appropriately accounted for. (Ensign voted initially for the bailout. Heller voted no.)

Obama’s proposal would sink the country further into debt at a time when the Bush administration left office with the federal deficit projected to hit a record $1 trillion in fiscal 2009. “We should be thinking about the debt,” Ensign said.

The challenge now for Democrats and the Obama administration is to decide to what extent they need to bring Republicans on board, and to what extent they will go it alone.

Nevada’s Democrats in Washington support the bill. With the party enjoying expanded majorities in the House and Senate, the plan could well pass without Republican votes.

Yet, Obama is striving to reach across the aisle. The new president held an impromptu talk with reporters as he left the Senate side of the Capitol on Tuesday, saying he realizes “we’re not going to get 100 percent agreement” — and might not even get 50 percent.

The proposal would assist Nevadans on various levels, giving most families a $1,000 payroll tax cut, beefing up unemployment benefits by $25 a week and extending the amount of time benefits can be collected, and subsidizing health care costs jobless workers pay when they keep employer-backed insurance through the COBRA system.

Nevada would receive funding for schools, public works projects and Medicaid, the program that provides health care to the poor, because more out-of-work families losing employer-backed coverage would turn to the state-run program.

Nevada’s Republican Gov. Jim Gibbons has embraced the package as a way out of the state’s dire budget situation — he has proposed a budget for the next biennium that contains deep cuts in spending.

Democratic Rep. Dina Titus released information Tuesday that shows the state would receive $291 million for highway, transit and water system projects — dozens of which are ready to begin construction immediately.

Titus also said $179 million would be available for the Clark County School District. Her suburban district has been among the fastest growing in the nation, and Titus issued a statement saying, “These critical funds in the recovery package will provide needed investments.”

Yet the state’s Republicans here remain unconvinced.

Ensign called spending in the package excessive. He said he prefers to see incentives for companies to create jobs.

Ensign generally supports lowering the corporate tax rate as part of the proposal. On Tuesday, he used his time with Obama to propose two corporate tax breaks — one to allow companies that make profits overseas to bring those home at a lower tax rate, and another to wipe away the tax companies pay when they restructure debt.

Obama committed to taking a look but made no promises, Ensign said.

Heller, too, said he wants to see a bill that gives entrepreneurs tax breaks to spur growth.

“I need a bill that creates jobs,” Heller said. “The best way to do that is to give relief to American families and small businesses.”

Yet Zandi, the economist, said more stimulus is gained by government spending than tax breaks — a belief shared by many economists. Every $1 spent on infrastructure spending translates to a $1.59 increase in the gross domestic product, Zandi said.

Some tax breaks are helpful, he noted, saying every $1 in payroll tax cuts under the bill would generate $1.28 in GDP. These tax breaks put money directly in the hands of those who could use it.

On the flip side, the trickle-down tax cuts many Republicans favor do not boost the economy as much, in Zandi’s analysis. Every $1 reduction in the corporate tax rate reaps just 30 cents in GDP growth, he wrote.

Similarly, every $1 saved by making permanent the Bush tax cuts on high-income earners or corporate dividends/capital gains generates less than 40 cents.