Dems see jobs report as factor in push for stimulus in debt deal

Lawmakers and economists are bracing for a jobs report that could signal how much of a push short-term stimulus will get as part of a fiscal deal between Congress and the White House.

The White House and Democrats are wrestling over how much to bolster the economy as they negotiate a deal aimed at addressing the nation’s long-term fiscal challenges.

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With Republicans cool to any stimulus measures, the scene is set for intense horse trading involving short-term measures — such as extending the payroll tax holiday or unemployment benefits — and longer term measures to reform entitlements or the tax code.

Rep. Sandy Levin (Mich.), the top Democrat at House Ways and Means, said the November figures would play a role in whether he would support another year of the payroll tax cut, or a reasonable substitute.

“You should keep open that option, depending on what we see on Friday,” Levin told reporters this week. “The president has proposed that we look at that or other measures, and we’ll see whether the economy is continuing to grow and unemployment continues to go down.”

Friday’s jobs report is the first since Hurricane Sandy hit the Northeast and is expected to be grim. Weekly unemployment claims have jumped because of job losses in the Northeast related to Sandy. An extremely disappointing number could bolster the case for more stimulus.

The focus of the fiscal talks has been on taxes and entitlements. Obama wants to extend Bush-era rates on annual income below $250,000 while allowing rates above that threshold to expire. Republicans are looking to win reforms to Medicare, Medicaid and Social Security, which they argue are the main drivers of rising government spending.

The stimulus measures are a relatively small part of this battle. President Obama’s fiscal proposal to Republicans included $110 billion for a payroll tax cut extension or something similar, plus billions more for an extension of unemployment insurance and additional stimulus.

Momentum for extending the payroll tax cut and unemployment benefits among Democrats was growing before the election.

On Wednesday, Sen. Bob Casey (D-Pa.) introduced legislation that would extend that tax holiday for one year, and Rep. Chris Van Hollen (D-Md.) has been pressing for an extension for months.

Republicans, however, have long doubted the payroll tax cut did much to stimulate the economy.

Sen. Bob Corker (R-Tenn.), who is working on his own fiscal consolidation plans, told reporters on Thursday that “the very best stimulus we could possibly have for our nation is to put this fiscal reform issue in the rearview mirror.”

Obama has called for unemployment benefits to be extended as part of the deal, and some Republicans have offered support — with caveats.

“Generally I think with unemployment still so high and so many people out of work through no fault of their own we need some sort of extension but I would like to see better links to job training and tougher job-search requirements as part of a package,” said Sen. Susan Collins (R-Maine), who has supported extensions in the past.

“We've got to do this, there are more than 2 million people looking over a real cliff,” Sen. Jack Reed (D-R.I.) said of the unemployed.

Reed has taken the lead on the issues and collected support from 41 other Democratic colleagues. “We're trying to make sure the issue is on the table,” he said.

While Washington policymakers haggle over a fiscal deal, the economy has shown signs of improving. The housing market is beginning to rebound, which has been good news for the construction sector. Signs have emerged of companies beginning to spend their savings, and stocks closed higher on Thursday.

A pair of economists generally agreed Thursday that the economy seems to be gaining enough ground, which could allow government to pull its temporary support from the economy.

“You don’t want to get into a cycle of dependency,” said Mark Zandi of Moody’s Analytics. “You want to slowly phase out the support to the economy and let the private sector fill in the holes.”

Kevin Hassett, director of economic policy at the conservative American Enterprise Institute, contended Thursday that the time had come to focus on getting finances in order and shake off the stimulus.

“We’re kind of in a hangover phase from these things,” he said. “If we just now recognize that we’re out of the emergency period, and if we fix these big problems, we can get over the hangover.”

Regardless of what happens to those lifelines, Zandi was optimistic that the economy is poised for a strong 2013. That is, if Washington finds a way to avoid the fiscal cliff.

“If you address this problem reasonably gracefully, I think the fundamentals of this economy are in great shape,” said Zandi. “If we nail this down, we’ll be off and running.”