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Obama Team Assembling $850 Billion Stimulus

By Lori Montgomery
Washington Post Staff Writer
Friday, December 19, 2008

President-elect Barack Obama and congressional Democrats have entered discussions over an economic stimulus package that could grow to include $850 billion in new spending and tax cuts over the next two years, a gigantic sum that some Democrats say could prove difficult to push rapidly through Congress.

A package of that size -- which would include at least $100 billion for cash-strapped state governments and more than $350 billion for investments in infrastructure, alternative energy and other priorities -- is a significant increase over the numbers previously contemplated by Democrats. It would exceed the $700 billion bailout of the U.S. financial system, as well as the annual budget for the Pentagon.

The potential for massive new spending has touched off a frenzy among interest groups eager to claim their share of the expanding stimulus pie. The profusion of requests from governors, transportation groups, environmental activists and business organizations is spawning fears that the package could be loaded with provisions that satisfy important Democratic constituencies but fail to provide the jolt needed to pull the nation out of a deepening recession.

"It's everybody's wish list, everybody's favorite program. And I think that's a big mistake," said Alice Rivlin, a Brookings Institute economist and former budget director for President Bill Clinton who has been advising Democrats. "I agree with the Obama team that we need a big increase in public investment, but it should be done very, very wisely," rather than through a rushed process that risks being "seen as scattering money to the wind."

An Obama adviser involved in crafting the stimulus package said the transition team was keenly aware of the potential pitfalls and was focused on funding ideas that would quickly pump money into the sagging economy, fulfilling Obama's promise to create or preserve 2.5 million jobs by 2011. Because many ideas probably won't meet that standard, the adviser said, the team is developing a screen to keep them out.

Yesterday, Obama economic adviser Jason Furman and congressional liaison Phil Schiliro met on Capitol Hill with key congressional staff to lay out the plan Obama expects to present to lawmakers. According to notes taken by a participant and shared by a senior congressional aide on the condition of anonymity, the pair said Obama is putting together a package of $670 billion to $770 billion but that he expects additions by Congress to jack up the total to about $850 billion, or 6 percent of the nation's economy.

While that figure is larger than any previously discussed by Democratic leaders, it is within the range of recommendations from economists. Some, such as Nobel Prize-winning economist Joseph Stiglitz, have called on the government to spend as much as $1 trillion to combat rising unemployment and spur economic activity.

Furman and Schiliro said the package would include $100 billion to help states cover the expanding cost of Medicaid, the federal health program for the poor. With more than half of states reporting budget shortfalls this year, the package also could include big increases in state block grants and other programs intended to help local governments avoid layoffs or tax increases.

At least $350 billion would be devoted to investments, including public works projects such as roads and bridges. That category also would cover funding for alternative energy, health-care technology, school modernization and "protecting the most vulnerable" by expanding unemployment insurance and food-stamp benefits, according to a memo sent to Senate Democrats yesterday by Senate Majority Leader Harry M. Reid's (D-Nev.) chief of staff, as well as other congressional aides.

Obama also expects to include significant new tax cuts for the middle class, probably modeled on his campaign promise to lower the tax burden on workers, students, the elderly and families. The package could also include his proposal to offer tax credits to companies that create jobs, according to sources.

Congressional aides said Obama is soliciting additional ideas from lawmakers with the aim of building support for a package that he hopes will be ready for him to sign soon after he takes office Jan. 20. In yesterday's meeting, however, Furman and Schiliro acknowledged that Jan. 30 may be a more realistic goal.

But even that date may be optimistic for a package of the magnitude under discussion.

Sen. Daniel K. Inouye (D-Hawaii), the incoming chairman of the Senate Appropriations Committee, said yesterday that there was no agreement on the size of the package, adding that he is skeptical of reports that it could approach $1 trillion.

"We're a country that's used to saying 'a million' or 'billion'. 'Trillion' is something that's very seldomly used," Inouye said.

The $850 billion figure is also meeting resistance from House Democrats, who say anything beyond the $600 billion House Speaker Nancy Pelosi (D-Calif.) has mentioned would probably lose votes among fiscally conservative Democrats known as Blue Dogs.

Concerns about the political viability of the package are compounded by fears that its economic effectiveness could be diluted. Rivlin said she would prefer quick approval of a much smaller package that contains only items that would rapidly push cash into the economy, such as aid to states and the poor and perhaps a payroll tax holiday. That could be followed, she said, by a larger spending package with investments thoughtfully crafted to achieve Obama's broader economic goals.

"Mass transit, the high-tech stuff, investment in health IT. Those are all good ideas. But they aren't stimulus," Rivlin said.

Simon Johnson, an economist at the Massachusetts Institute of Technology, said he shares Rivlin's concern that such a huge pot of money would probably be misspent.

"My personal opinion is you can spend $450 billion quite sensibly," Simon said. "But if you start raising it up, you have to ask whether you're getting good value for the money."

Acknowledging the tough task ahead, a coalition of 20 liberal organizations and unions -- including the Sierra Club, AFSCME, the AFL-CIO and ACORN -- yesterday launched a $5 million grass-roots and public relations campaign to support the evolving package and avert a filibuster in the Senate.

"Our goal is to help move it along as fast as humanly possible so Obama doesn't have to waste a lot of his capital on it as president," said Brad Woodhouse, president of Americans United for Change, which is coordinating the effort. "There are going to be big fights ahead on health care and completely trying to revamp our approach to energy. If you have to do a lot of horse-trading on this thing, it makes what comes afterward a lot more difficult."

Staff writer Paul Kane and polling director Jon Cohen contributed to this report.

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