Republicans want mortgage relief, larger tax cuts

The emerging  proposal  also  relies  on  a  bigger  and  more  widely available  tax  break  for  homebuyers than is now available, those officials added as Senate Republicans staked their claim to a different type of economic recovery measure than Democrats and the administration favor.

Democrats already are under pressure from moderates in their own party to scale back spending in the $885 billion bill, and Obama met with party leaders at the White House late in the day to discuss strategy.

"What  we  can't  do  is  let  very modest  differences  get  in  the  way" of swift enactment of the legislation, Obama  said  several  hours  earlier as  new  layoffs  rippled  through  the economy and the Commerce Department reported an unexpectedly large sixth straight drop in personal spending.

In the Capitol, Republicans said their goal was to change the bill, not to block it. "Nobody that I know of is trying to keep a package from passing," said Sen. Mitch McConnell of Kentucky, the Republican leader.

"We need to fix housing first," he said.  Republicans are expected to seek a vote on their proposals this week as part of the debate on the overall stimulus measure.

Officials  said  the  GOP  was  coalescing behind a proposal designed to  give  banks  an  incentive  to make loans  at  rates  currently  estimated at  4  percent  to  4.5 percent.  Fannie Mae  and  Freddie Mac, which were seized  by  the  federal  government in September, would  be  required  to purchase  the mortgages  once  banks have made them to consumers.

Officials said loans to credit-worthy borrowers on primary residences with a mortgage of up to $625,000 would qualify, including those seeking to refinance their current loans.

Separately,  Republican  officials said  they  intended  to  press  for  a $15,000  tax  credit  for  homebuyers through  the end of  the year. Current law permits a $7,500 tax break and limits it to first-time homebuyers.

Republicans  generally  dislike government  intervention  in  the workings of the private marketplace, but  their  opposition  has  eroded  in recent months as  the crisis  in  the financial  industry  and  economy  have deepened.

The officials who described the emerging proposal did so on condition of anonymity, saying they were not authorized to discuss it.

McConnell  also  said  Republicans  favor  cutting  the  two  lowest tax brackets as a way to " put money back  in  people's  hands  directly."  If adopted, that would reduce the tax rate from 10 percent to 5 percent for the first $8,350 in individual income for the current year and $16,700 for couples. The tax rate would be lowered from 15 percent to 10 percent on income between $8,351 and $33,950 for individuals and between $16,701 and $67,900 for couples.

Obama and the Democrats favor a different approach. The legislation provides  a  cut  of  $500  for workers and  $1,000  for  working  couples, even  if  they  do  not  earn  enough  in wages to pay income taxes.

Separately,  Democrats  privately conceded  they may wind  up  reducing  spending  that  has  come  under withering  fire  in  recent  days  from Republicans.

Last week, House Democrats jettisoned money to reseed the National Mall and a provision to make it easier for states to offer family planning services to the poor under the Medicaid program.

Democrats hold  a  commanding 58-41  majority  in  the  Senate,  but some  of  their  more  moderate  and conservative  members  are  pushing to  trim  spending.  There  was  additional  pressure  on  the  leadership  in the  form  of  bipartisan  amendments to  reduce  spending. As a result, the outcome of the debate on the measure is far less clear than it was in the House, where leaders had the votes to enforce their will.

The  political  environment  also has  changed  since  House  Republicans  voted  unanimously  against  the bill  last week.  Public  opinion  polls show  strong  support  for  a  package of tax cuts and spending increases to remedy  the  worst  economic  downturn since the Great Depression. But Obama is now on the spot, having pledged personally to GOP lawmakers that he would make changes in the bill once it reached the Senate.

The $885 billion  Senate  bill  is larger than the House-passed version, principally because it includes a one-year tax cut to prevent upper-middle income taxpayers from falling victim to the Alternative Minimum Tax. The so-called AMT initially was created a generation ago to make sure the super-wealthy did not avoid taxation,

but inflation has  expanded  its  reach over the years.

In  all,  the  Senate  measure  provides  for  roughly  $560  billion  in spending and $325 billion in tax cuts.

Much  of  the  spending  is  in  the form of health care for the poor; education  funds  for  the  states  to  avoid the  impact of  their own budget cuts on schools, and more money for food stamps,  unemployment  insurance and worker retraining funds.

Additionally,  the  bill  includes  a down  payment  on  two  of  Obama's domestic  initiatives.  They include expanding health information technology and providing spending and tax cuts to encourage development of new jobs while increasing reliance of alternative energy sources.

Whatever the breakdown, Republicans said there was far too much spending, and not enough in tax cuts.

Obama made his comments at the White House, where he met with Vermont Gov. Jim Douglas, the Republican vice  chairman  of  the  National Governors Association.

"If I were writing it, it might look at little different," said Douglas, trying to keep faith with Republican critics in Congress while saying his state needed help.  "But the essence of a recovery package is essential to get the nation's economy moving."

The White House issued a statement late Monday saying the president and Democratic congressional leaders had a productive meeting and that they agreed on the urgent need to pass legislation. They also pledged to continue working together to achieve a bipartisan consensus.

The latest layoffs were announced by Macy's, the Cincinnati-based department store chain, which said it was cutting 7,000 jobs.