Tuesday, 9:56 a.m.

By Bruce Alpert
Washington bureau

WASHINGTON - The Senate's Finance Committee Monday unveiled the first comprehensive proposal to aid the recovery of individuals and businesses who suffered devastating economic damages from Hurricane Katrina.

The proposals include tax breaks for businesses that hire workers who lost jobs because of the hurricane and penalty-free withdrawals from retirement accounts to help people with their immediate cash-flow problems.

Some of the tax benefits are modeled after relief given to businesses and people who returned or relocated to lower Manhattan after the World Trade Center towers were toppled in the 2001 terrorist attacks.

"With this first initiative from the Finance Committee - and there will be more in other areas where we have jurisdiction - we want the victims through all of the affected areas to know that they can count on us to create a set of measures that will return vitality and vigor to the Gulf region," said the panel's chairman, Charles Grassley, R-Iowa.

Meanwhile, two members of the House's Tax Writing Committee, Republican Peter King and Democrat Charles Rangel, both of New York, announced that they are introducing legislation to create what would be the nation’s largest empowerment zone in which businesses would qualify for tax breaks and low interest loans for redevelopment projects in hurricane ravaged communities.

"We want to provide very significant tax incentives for businesses to locate there, incentives for housing, and attempt to minimize as much of the red tape as possible by creating one central clearing house for government programs," King said.

Sens. Mary Landrieu, D-La., and David Vitter, R-La., said they are working with other members of the Louisiana congressional delegation on a package of tax breaks and incentives to facilitate recovery in Louisiana. One component will be “bridge loans” so that struggling businesses could quickly get back on their feet.

Daniel Hamermesh, a labor economist at the University of Texas in Austin, said while Congress is focusing on tax incentives and loans the real key to getting businesses to come back to metro New Orleans is "restoration of key infrastructure as quickly as possible." He said the city could also draw a lot of interest by redeveloping in a manner that takes advantage of the latest technologies, perhaps becoming the first city almost entirely focused on “wireless telecommunications’’ rather than relying on traditional copper wires.

Jack Kemp, a Republican who headed the Housing and Urban Development Department for President George H.W. Bush, said that a large scale empowerment zone, along with subsidies for businesses that hire displaced workers and fewer regulations on building, would be important inducements for companies deciding whether to return to hurricane ravaged communities. He said that fewer regulations could speed the recovery, but that there should be strong regulations to limit develop in flood-prone communities.

It won't be easy for small businesses displaced by Hurricane Katrina, said Brian Drum, president and CEO of Drum Associates, an executive search agency in lower Manhattan. After the World Trade Center towers collapsed in 2001, about 300 yards from the firm’s own office building, the company went overnight from its best economic returns to "zero" sales. “Our office was unusable, and we came pretty close to running out of cash,” he said.

He said his company was eventually able to recover, retaining most of its original employees and even lately expanding its staff from 32 to 35 workers.

"I know this is not something any business would want and the challenges facing those in New Orleans are greater than what we faced because we at least had our homes, but it does provide an opportunity to start over with the benefit of all that you've learned in the years since you started your business,” Drum said. “All off us know so much more than when we started.”

The Senate package, unveiled Monday by Grassley and the Finance Committee’s top Democrat, Max Baucus, D-Montana, includes the following provisions:

-- No tax liability for debts forgiven by commercial lenders. Currently, a forgiveness of debts is considered income and therefore taxable.