By Neil Irwin, Lori Montgomery and Michael A. Fletcher
Washington Post Staff Writers
Friday, October 9, 2009
Eight months after enacting a massive economic stimulus package, the Obama administration is facing rising pressure from some congressional Democrats to move more aggressively to jump-start the moribund job market and try to spur a housing recovery.
For the lawmakers, the imperative is clear: to get the job market back on track before midterm congressional elections in November 2010. While mainstream economists credit the $787 billion stimulus package passed in February for helping stabilize the economy, the unemployment rate reached 9.8 percent in September and is widely forecast to keep rising in the coming months.
But the White House, which is juggling priorities -- including a health-care overhaul, big changes to financial regulation and a proposal to combat global warming -- is reluctant to take on another far-reaching task. And in a time of large budget deficits, administration officials are particularly eager not to do anything that would be characterized as another stimulus act or tagged as wasteful spending.
Many Democrats -- especially in the House -- favor moving swiftly to bolster the job market after they pass health-care legislation. The House has already voted to extend unemployment benefits, and the Senate may do so next week. Support is already building around a plan to extend an $8,000 tax credit for first-time home buyers, which was included in the first stimulus package but is slated to expire Nov. 30. And lawmakers are discussing a wide range of other ideas, including a tax credit for businesses that create jobs, additional tax incentives for businesses to invest in equipment, and a large package of new transportation projects.
"There are some initiatives that we must do," particularly extending unemployment insurance, House Speaker Nancy Pelosi (D-Calif.) told reporters Thursday. "What is it that we can afford? What works the fastest? We have to get those judgments," she said, adding that she will consult with economists in the coming weeks about which policies might best help.
Pelosi also said that extending the tax credit for first-time home buyers is "under consideration," as is whether to extend such a credit to other buyers.
The White House is moving cautiously, weighing proposals from Capitol Hill and beyond but disinclined to combine them into one broad, potentially expensive bill that would draw fire from Republicans, administration officials said. Rather, the administration wants to enact some policies through the regular budget process and avoid those that do not directly support the job market.
"It is a real balancing act between worrying about the job problem and making sure you are squeezing every job you can out of every dollar that is spent," said an administration official who spoke on the condition of anonymity to discuss ongoing deliberations. Administration officials said no decisions are imminent on what ideas President Obama will endorse, and they note that only about half the stimulus money has been spent.
Democratic leaders in Congress are struggling under the twin pressures of a rising jobless rate and a soaring federal budget deficit. The Congressional Budget Office reported this week that the deficit hit $1.4 trillion in the fiscal year that ended in September. Representing nearly 10 percent of the overall economy, the deficit is the highest since World War II. Polls show the public is increasingly concerned about the rising tide of red ink, particularly as lawmakers contemplate a vast and expensive restructuring of the nation's health-care system.
But many Democratic leaders in Congress tend to view joblessness as the more immediate political concern. The entire House and many senators will face voters next November, and some political analysts say Democrats stand a good chance of losing control of the lower house unless they develop a more effective plan for creating jobs.
"We're certainly myopically focused on getting health care done. But at the same time, this caucus and the leadership are focused on job creation and what we need to do to put Americans back to work," said Rep. John B. Larson (Conn.), the No. 3 Democrat in the House, who has been calling publicly for another big package of transportation spending. "Jobs is uppermost in our minds."
On Thursday, Rep. Charles B. Rangel (D-N.Y.), the chairman of the tax-writing Ways and Means Committee, endorsed an extension of the home-buyer credit, saying, "There's no question, I think it should be extended." But Rangel said it would be "too expensive" to make the credit permanent or offer it to all home buyers, as some have suggested. Democratic aides said extending the credit would cost more than $1 billion per month.
Republicans, who have pilloried the administration for ongoing job-market woes despite the previous stimulus package, argued that any new stimulus package should focus on tax cuts.
"I think everyone knows that American families and small businesses continue to struggle," said House Minority Leader John A. Boehner (Ohio). "These high unemployment rates are not coming down. The stimulus is not working. And some of the policies that are continuing to be promoted here are not going to help the situation; they are going to make it worse.
The difficulty lawmakers face in enacting new spending is reflected in the bickering over a plan to extend emergency unemployment benefits for another three months -- an idea that many independent economists consider a "no-brainer," as IHS Global Insight chief financial economist Brian Bethune put it.
The House approved a bill to extend benefits in states where the jobless rate is 8.5 percent or higher two weeks ago, but the measure has since faltered in the Senate. On Thursday, Senate Democrats resolved a dispute over how broadly to distribute the benefits, offering a $2.4 billion plan that would grant up to 14 additional weeks of benefits to workers in all 50 states while offering up to 20 additional weeks to jobless workers in the hardest-hit states. The measure would be fully paid for by extending the federal unemployment tax through June 2011.
Republicans objected to efforts to speed the bill to a vote in the full Senate, however. And while Senate Minority Leader Mitch McConnell (R-Ky.) has said that Congress should act to extend unemployment benefits, he has questioned the need for broader spending on the economy.
"When you get into the very high levels of unemployment we'll be struggling with next year, not extending benefits threatens to undermine not only the spending of households under that stress, but the very fragile confidence of everyone else," said Mark Zandi, chief economist of Moody's Economy.com, who was consulted by lawmakers as they crafted the original stimulus bill.
Another open question is whether to extend the $8,000 tax credit for first-time home buyers. The program is widely credited with helping the housing market stabilize by driving up existing-home sales, home construction and housing prices in recent months.
And that has spinoff benefits: People buying a house tend to spend money on furniture and upgrades, and higher home prices make people feel wealthier and reduce losses by banks on foreclosures. On the other hand, the program has been expensive, and its benefits accrue to people who are already affluent enough to buy a home.
Meanwhile, liberal economists are urging Democrats to consider public-works programs and another round of aid to states, including many that are facing budget cuts projected to cost 700,000 jobs over the next two years. "States either have to raise taxes or cut spending. And when they cut spending, they lay people off and buy fewer products and services from the private sector," said Ross Eisenbrey, vice president of the Economic Policy Institute, a labor-oriented research organization.
Rep. Chris Van Hollen (D-Md.), who leads the campaign committee tasked with electing Democrats to the House, said there's no consensus within his party about how far to go beyond the initial stimulus package.
"If the assessment is the economy is picking up steam, you would want to continue to do the safety-net stuff, but you would not want to get into another big package that was not paid for," he said. "But if you determined the economy was not improving as expected, then you would consider the other option."
While White House officials say they have yet to settle on a strategy, they add that economic problems will continue until unemployment falls to more acceptable levels.
"The president is happy that GDP is growing," said a senior official, who spoke on the condition of anonymity to discuss the internal deliberations. "But he says unless we see some serious job creation, we are nowhere near out of the woods."