The Senate Republican leader, Trent Lott, R-Miss., also said he supports a monthlong payroll tax holiday to stimulate growth.
The agreement will start -- after weeks of delays -- bipartisan and bicameral talks on the composition of the stimulus package, which is estimated at about $75 billion. Prior to Wednesday's agreement, Senate Democrats and Republicans could not even agree on the format of the talks, let alone the principles in the legislation.
"We are pleased that the Democrats have accepted our challenge and agreed to separate the new spending from our stimulus package," Lott told reporters.
Democrats insisted on more spending on benefits for the unemployed, homeland defense, bio-terrorism protection and other appropriations. Senate Republicans -- backed by the White House -- prefer to eliminate the alternative minimum corporate tax and on Tuesday proposed a temporary elimination of the Social Security payroll tax and split the benefits between employers and employees.
"In keeping with our effort to try and accommodate our Republican colleagues and the administration, who've expressed opposition to spending any (more money), we're prepared to offer this as a way within to move the process forward," Daschle told reporters Wednesday. "So we're hopeful that this will allow us that opportunity."
Daschle, after meeting with President George W. Bush on Wednesday, proposed removing the homeland security spending from the stimulus package, cutting it in half to $7.5 billion and adding it to a defense appropriations bill instead. Bush has been pressuring Senate Democrats for weeks to act on a stimulus package, but he prefers the accelerated tax cut approach to any new spending.
"The House of Representatives acted on a stimulus bill, but it seems to be stuck in the Senate. It is important for the Senate not to look for ways to spend new money, but to look for ways to create new jobs," Bush said at a public appearance before farmers. "And so I asked the Senate leadership to work out their differences and pass an economic stimulus plan so they can get it in conference and get a bill to my desk as quickly as possible."
Bush failed to mention that his own Treasury secretary has dismissed the House bill as nothing more than a payoff to corporate lobbyists. Paul O'Neill also publicly questioned the stimulus value of that particular plan.
Daschle's concession set the stage for a meeting Wednesday evening between key members of both parties in an attempt to reconcile their two approaches to the bill.
After weeks of stalemate, even a meeting is a significant move forward. Democrats have been offering to meet with Republicans under the condition that the House, Senate and White House participate in the meeting. Republicans refused to hold such talks until Daschle removed the requirement of $15 billion of new appropriations from his proposal.
By slashing the figure in half and sending it to the defense appropriations bill, Daschle has effectively met those demands.
"The Democrats blinked," said one Hill staffer.
Sen. Pete Domenici, R-N.M., on Tuesday proposed a monthlong holiday on Social Security payroll taxes, which would immediately reduce taxes by about 6 percent for both workers and employers, for a total reduction of 12.4 percent, a plan seen by some in both parties as interesting.
Lott called for the holiday plan in addition to the acceleration of the tax cuts already approved by Congress earlier this year. Republicans have proposed speeding up the tax cuts to increase their effect on the slumping economy, but Daschle has already rejected both a payroll tax holiday and accelerated tax cuts.
"What I want to say is that we are willing to look at the payroll tax holiday, but it really can't be in addition to the rate reduction acceleration," Daschle said. "Perhaps if we took the rebate and the rate reduction off the table and looked at the payroll tax exemption as an alternative to both, that might be something we could look (at)."