By Lori Montgomery
Washington Post Staff Writer
Sunday, December 21, 2008
President-elect Barack Obama has expanded his goals for a massive federal stimulus package to keep pace with the increasingly grim economic outlook, aiming to create or preserve at least 3 million jobs over the next two years.
The more aggressive target, up from 2.5 million jobs set a month ago, comes after a four-hour meeting last week in which Obama's top economic advisers told him the economy is now expected to lose as many as 3.5 million jobs over the next year. Obama was told that could drive unemployment, currently at 6.7 percent, above 9 percent, a figure not seen since the recession of the early 1980s.
With liberal and conservative economists calling on the government to spend $800 billion to $1.3 trillion to stanch the bleeding, the greater danger to the nation, Obama was told, lies in doing too little rather than too much.
Given that gloomy forecast, Obama last week presented congressional Democrats with a proposal to dedicate $675 billion to $775 billion over the next two years to middle-class tax cuts, aid to strapped state governments and investments in domestic priorities such as infrastructure, health-care technology and education -- a package designed to jolt the economy while deterring further layoffs and putting people back to work.
Congressional aides said they have talked with Obama's team about tacking on initiatives that could drive the overall price tag as high as $850 billion, a figure more in line with economists' recommendations. But with resistance expected from Senate Republicans and some fiscally conservative Democrats, an Obama adviser said the team has settled for now on $775 billion as the highest figure likely to win congressional approval and be ready for Obama's signature soon after he takes office Jan. 20.
Lawrence H. Summers, the former Clinton administration Treasury secretary who has been tapped to serve as Obama's top economic adviser in the White House, said in an interview that the numbers are likely to shift as the package takes shape before Congress commences Jan. 6.
"I don't think you can regard this simply as a numbers game. It's really going to depend upon the quality of the spending programs that we're able to identify," Summers said. "If we're able to identify spending programs and effective tax measures that really can do the job, I think there would be a lot of receptiveness."
As the recession has deepened, Obama's proposal for economic stimulus has soared from $175 billion during the campaign to nearly $800 billion today, a sum that some say would fund the most expensive measure ever approved by Congress.
The rapid expansion of the package has generated fears that it could easily evolve into a grab bag of provisions that appeal to traditional Democratic constituencies such as unions, environmental activists and local officials but fail to deliver the necessary medicine for the economy.
Because they are intended to pump cash quickly into the economy, stimulus measures are released from the usual budgetary constraints that require the cost of new programs to be covered by cutting spending elsewhere or by raising taxes -- a one-time pass that could invite lawmakers to load the bill up with favored items.
Summers and other Obama advisers said they are keenly aware of the problem and are working to convince lawmakers of the wisdom of limiting the package to projects that would create a large number of jobs quickly or make a down payment on Obama's broader economic goals, such as improving the health-care system or reducing emissions that contribute to global warming.
"While this may be Christmastime, it doesn't mean there's going to be a large number of unrelated ornaments under the Christmas tree," Summers said. "There's a commitment by all of us to discipline and to doing the right things in terms of accountability."
Summers said Obama's budget team is "scrubbing" various proposals for "basic soundness." The team also is developing ideas to make expenditures transparent to the public, perhaps through regular progress reports or even Internet sites where "people could monitor the fraction of each project that had been spent out," he said.
Obama also plans to mandate that states use the money within a time frame or be forced to return it. And his team is looking into public-private partnerships as a way to make the money stretch even further.
Democratic leaders, meanwhile, have agreed to ban earmarks, which target funds for lawmakers' pet projects.
A rough outline of the package has taken shape in meetings on Capitol Hill in past days. According to congressional sources who spoke on condition of anonymity because the plan is not yet final, the money is expected to be split into three pots, with at least $100 billion going to the states, primarily to cover the rising cost of health care for the poor.
Roughly $350 billion would be invested to rebuild roads and bridges, modernize schools and help hospitals and doctors switch to computerized patient records. That category also would include projects aimed at improving energy efficiency, such as weatherizing buildings, as well as aid to the poor through expanded unemployment and food-stamp benefits.
Obama's team has also laid out a substantial tax-cutting agenda that will include a $1,000 tax credit for working families, Obama advisers said, a provision that congressional sources said is estimated to cost about $140 billion over two years. Other tax provisions could include tax breaks for businesses, an expansion of the earned-income tax credit for the poor and new credits for tuition and alternative energy, congressional aides said.
That framework will be fleshed out more fully in coming days, as Obama's team continues to communicate with Democratic leaders, his advisers said. When Democrats have reached an agreement, Obama's team will expand its outreach to Republicans, an adviser said, in hopes of convincing them not only that the nation's deteriorating economy requires immediate action, but that a massive infusion of government cash is the appropriate response.