By Lori Montgomery and Shailagh Murray
Washington Post Staff Writer
Saturday, December 4, 2010; 12:00 AM
An unexpected groundswell of support was building Friday around an aggressive blueprint for cutting long-term spending, raising taxes and stabilizing the growing national debt, as lawmakers in both parties called on President Obama to embrace the proposal and launch a serious effort to rebalance the federal budget.
Eleven of the 18 members on Obama's fiscal commission voted to endorse the package, short of the 14 needed to force quick action in Congress. But three Republican and three Democratic lawmakers were among those voting "yes," a show of bipartisan support that Senate Majority Whip Richard J. Durbin (D-Ill.), a commission member, hailed as a "breakthrough."
The reality of deficit reduction remains more complicated, however, particularly against a backdrop of stubbornly high unemployment and strident calls for short-term spending to boost the economy. The Bureau of Labor Statistics released a surprisingly weak jobs report Friday showing that the unemployment rate jumped to 9.8 percent in November. Emergency jobless benefits expired this week, and the price for keeping them flowing through next year, as Democrats favor, is $56 billion.
Meanwhile, tax cuts enacted 10 years ago during record surpluses are set to expire on New Year's Eve, and the two political parties are waging a bitter battle to extend some or all of them - adding trillions of dollars to future deficits. Even as they applaud the commission's work, lawmakers have so far demonstrated little appetite for the painful job of raising people's taxes and cutting their federal perks.
Many economists, including Federal Reserve Chairman Ben S. Bernanke, argue that this would be the wrong time to pursue austerity measures, anyway. Fresh spending and tax cuts may worsen deficits in the short term, but they could serve to shrink them in the long run by boosting economic growth, increasing business profits and swelling personal paychecks - all of which increases the flow of tax revenue to federal coffers.
"If the unemployment rate were at its pre-recession level of 4.5 percent, we would have, at most, a modest deficit," said Dean Baker, co-director of the left-leaning Center for Economic and Policy Research, who has called forcefully for Congress to abandon its obsession with deficit reduction in favor of more spending on job creation.
The commission's plan to slash deficits by $4 trillion by the end of the decade seeks to account for those concerns by delaying austerity measures until 2013 and urging adoption of a payroll tax holiday that would leave as much as $100 billion in the pockets of consumers next year.
Meanwhile, in year-end negotiations with Congress, the Obama administration is pressing for as much as $150 billion in fresh stimulus. In addition to preserving Bush-era tax breaks for the middle class and extending jobless benefits for another year, Obama wants to extend a host of tax breaks enacted as part of the 2009 stimulus package, including his signature "Making Work Pay" tax cut for middle-class families.
Austan Goolsbee, chairman of the White House Council of Economic Advisers, said the risk to the economy is significant if Congress fails to act. Gridlock, he said, would leave 2 million jobless workers facing the holidays without an unemployment check - and everyone else looking at a potentially sharp tax increase in January.
"Any recovery is always fragile at the beginning . . . and you've got to make sure you don't pull the rug out from under the middle class at this moment," Goolsbee said.
The White House is deep in negotiations with the GOP over those and other year-end issues, and less focused on the recommendations of its fiscal commission. On Friday, Obama, who was speaking to troops in Afghanistan, issued a statement praising the commission's work and vowing to consider its recommendations when shaping his next budget request in February.
"Overall, my goal is to build on the steps we've already taken to reduce our deficit," Obama said. "I don't doubt our ability to meet this challenge, but our success depends on our willingness to engage in the kind of honest conversation and cooperation that hasn't always happened in Washington."
As Treasury Secretary Timothy F. Geithner and White House budget director Jack Lew made plans to review the deficit-reduction package with commission members, an enthusiasm divide was already evident - less between the two parties than between the House and Senate.
In the Senate, a growing number of lawmakers in both parties urged the administration not to let the commission's work fade away. Fourteen Democratic senators sent a letter to Obama and top congressional leaders praising the deficit plan and demanding "prompt action" to reduce deficits - a call echoed by several senior Republicans, including Senate Minority Leader Mitch McConnell (Ky.).
"Historically, divided government has provided great opportunity to tackle the country's biggest problems on a truly bipartisan basis," McConnell said in a statement, referring to the shift in power that will put Republicans in control of the House in January and Democrats in control of the Senate and the White House. "It is my hope that this effort will serve as a catalyst for achieving the spending and entitlement reform that our country so desperately needs."
But House leaders were markedly less enthusiastic. All three House Republicans on the fiscal commission voted against sending its final report to Congress for a vote, including Rep. Paul D. Ryan (Wis.), a champion of deficit reduction. Ryan did, however, say he would incorporate elements of the plan into next year's budget blueprint.
House Speaker Nancy Pelosi (D-Calif.) was even less effusive. Pelosi, who dismissed an earlier version of the commission's blueprint as unacceptable because of proposed cuts to the social safety net, refused to respond Friday when reporters asked for her reaction.
While the fiscal commission concluded its work, the Senate was preparing for a rare Saturday session to vote on the Bush tax cuts. Democrats plan to consider two measures, one that would raise taxes on annual household income above $250,000, and a second that would raise the threshold to $1 million.
Neither is expected to win the 60 votes needed to overcome a GOP filibuster. But Democrats hope to coax at least a few Republican defections, while signaling to voters that the party is serious about tackling the federal deficit by letting the tax cuts that benefit the wealthiest households expire.
If the votes fall short, Democrats face the prospect of accepting a compromise on taxes, developing between the White House and the GOP, that would extend all the Bush-era tax cuts for at least two years.
In return, Obama wants Republicans to support a vote to ratify the New START nuclear arms control treaty before the Senate adjourns for Christmas.
Extending all the expiring tax cuts is projected to deprive the Treasury of more than $300 billion next year. Durbin said the tax debate has been disorienting alongside his work on the fiscal commission.
"That is an indication of the great distance between [the commission] hearing room and the Capitol Building," he said Friday. "We can sit here and deal honestly with what needs to be done, while just a few hundred feet away, there's this surreal conversation that somehow tax cuts don't count."