Dems, GOP Spar Over Best Ways to Revive Economy

With high unemployment and a slowing economy, President Obama's desperately searching for anything that would help the economy -- and reduce the possibility of deep democratic losses in November.

Which is why Sen. John McCain characterizes the president's latest ideas this way: "My reaction is that we always like to see deathbed conversions, but the fact is if we'd had done this kind of thing nearly a couple years ago we'd be in a lot better shape."

McCain, speaking on "Fox News Sunday," was referring to Obama's next move: On Wednesday, he's expected to propose an extension of a longstanding business tax credit for research and development.

First put in place in 1981 under President Reagan, it has plenty of Republican support.

But a former Clinton economic adviser Laura Tyson warned this weekend that it will not help jobs in the short term.

"I don't think this is something that has an immediate -- as immediate a job impact as, say, movement on the current tax credits for the unemployed or extending a payroll tax holiday of some sort," Tyson said Sunday on CBS's Face the Nation. 

And there's a catch -- the president's looking for ways to pay for the research and development tax credit by offsetting cuts elsewhere -- about $100 worth over ten years.

"So he's going to have to take some of the corporate tax benefits away to pay for it. And so it will be interesting to see how businesses balance that," said Moody's analyst Mark Zandi, also speaking on Face the Nation.

This could still become a political battle. Republicans note that $275 billion of the original stimulus bill has not yet been spent. They say that should be used.

But the biggest battle of all will be over what to do about the Bush tax cuts, most of which expire at the end of the year.

"The first thing we need to do is extend the tax cuts that are in existence so people have that certainty," McCain said.

Zandi agrees.

"We need to nail this down quickly, because in my view, the reason why businesses aren't hiring ... is because of a lack of confidence," he said. "They're just nervous, flat out nervous."

Obama and most Democrats argue the tax cuts should be extended only for families that make $250,000 or less.

"I wouldn't raise anyone's taxes in 2011," Zandi said. "I think the recovery is just too fragile and we can't take that chance."

He says "maybe by 2012 and '13, '14, when the economy is off and running," then the tax cuts could be phased out.

Several Democratic lawmakers agree, and favor extending the tax cuts even for the richest 2 percent of Americans, at least temporarily.

One is Sen. Kent Conrad, chairman of the Senate budget committee, who says "I would extend the tax cuts for two years."

And Indiana Sen. Evan Bayh says, "There's a growing body of evidence suggesting people who are little more fortunate or helping to keep consumer spending up right now so raising anyone's taxes in this moment and time in this week economy doesn't make economic sense."

Rep. Gerry Connolly of Virginia also favors at least a temporary extension for the richest Americans.

"We are where we are and the top 5 percent income bracket in this country accounts for 30 percent of all consumer spending," he said. "Given the fragility of the economic recovery, I think it is a bad time to be raising taxes on that part of our population."

But not until now has a member of the House Democratic leadership opened the door for a temporary extension of cuts for the wealthy. Rep. Chris Van Hollen of Maryland criticizes the Republican argument to permanently extend all the tax cuts, even those for the wealthy, "Because they are not saying only 'well let's keep this going for just one more year,' I mean that can be part of the discussion. That can be part of the mix."

Even saying a temporary extension can be "part of the mix" is a major step for Democratic leaders in the House.

Van Hollen dismisses a permanent extension of cuts for the wealthy, saying it would blow a hole in the deficit because it would cost some $700 billion over ten years.