Senate Democrats say deficit package must include stimulus

Senate Democrats, feeling confident from their net gain of two seats in last week’s election, say any deficit-reduction package negotiated in the coming weeks must include stimulus measures.

They have yet to decide which prime-the-pump measures to push, but are mulling options such as new infrastructure spending and an extension of the payroll tax holiday.

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Some Republicans are likely to balk at the notion that a package to cut the deficit would include new spending. But Democrats argue the No. 1 concern for voters is job creation and that the government needs to take a more aggressive role in spurring the economy.

“We need to do something on stimulus as part of the overall fiscal cliff,” said Sen. Charles Schumer (D-N.Y.), the Senate Democrats’ chief political strategist. “We have to do something because the economy is not growing fast enough in the first year or two.”

Schumer said deficit reduction and a federal stimulus package are not mutually exclusive.

“You can have a 10-year deficit-reduction package that encourages a way to get the economy moving more quickly in the first year or so,” he said.

Schumer said extending the payroll tax holiday and “dealing with infrastructure” are among “all kinds of different things” on the table.

In 2010, Congress cut the payroll tax rate, which funds the Social Security trust fund, from 6.2 percent to 4.2 percent, giving a worker who earns $35,000 a year a tax cut of $700 and a worker earning $50,000 a year a roughly $1,000 break. If it were to expire at the end of this year, 160 million Americans would see their taxes go up.

Extending the payroll tax holiday for another year would cost $120 billion. The federal government has been covering the loss to the Social Security trust fund with money from the general Treasury.

Some Democrats worry that extending the payroll tax cut could undermine the solvency of Social Security, and might be more inclined to support spending on infrastructure.

Senate Majority Leader Harry Reid (D-Nev.) has staunchly opposed any effort to cut Social Security benefits to curb the cost of the safety-net program.

Senate Democrats have tried to pass infrastructure spending programs in the past two years, only to be thwarted by Republicans. Last year, Senate Republicans filibustered a measure to invest $50 billion in infrastructure such as roads, railways and airports, which was part of President Obama’s $447 billion jobs bill.

The 2009 fiscal stimulus, which Congress passed early in Obama’s first term, included more than $100 billion in infrastructure investment.

Republicans argue the stimulus was an expensive failure, but Moody’s concluded in 2010 that every dollar the package spent on infrastructure returned $1.44 to the economy.