Just as Obama begins, huge deficit could hamper plans

McClatchy NewspapersJanuary 7, 2009 

WASHINGTON — The forecast Wednesday of a jaw-dropping $1.2 trillion one-year federal budget deficit will make it harder for President-elect Barack Obama to win broad support for a massive stimulus package that would add even more to the red ink.

With his party controlling both the House of Representatives and the Senate, Obama's still likely to get the OK for spending and tax cuts that cost $1 trillion or more over two years and are designed to jump-start the economy and create or save 3 million jobs.

However, while many economists, business groups and politicians agree on the need for something dramatic, Obama now concedes that he'll have to wait until February to get a bill to sign. He'll probably find conservative "blue dog" Democrats as well as Republicans balking at the idea of borrowing another $1 trillion on top of this new annual deficit.

They could deny Obama the kind of broad, bipartisan approval that he hopes will signal not only that he's changed the political culture of a divided Washington but also that he's put forward a plan that's widely popular. Such approval is crucial as he moves to rebuild trust in the government and the economy.

He plans to speak more about the need to rebuild confidence in a speech on the economy Thursday.

Yet even before he can point to a law meant to boost the economy or to post-stimulus efforts to rein in budget deficits, he has to deal with the fallout of the Congressional Budget Office's forecast that the current year's deficit will jump from last year's $455 billion to a record $1.2 trillion.

"There's a sticker shock problem," said Steven Schier, a political scientist at Carleton College in Minnesota and the author of a book on budget politics. "This is a new problem for Obama: How far out there are people willing to go?"

He noted that there are as many as 100 fiscally conservative Democrats in the House and 20 in the Senate who're probably stung by the deficit figure and reluctant to use the stimulus as an easy ride for new programs.

"We want to do an economic stimulus, but there also has to be fiscal discipline," said Sen. Mark Pryor, D-Ark. "I do like doing things in the stimulus that invest. I like the commitment to infrastructure. . . . I like the idea of helping colleges and universities.

"But I'm always leery when people start thinking too much of politics and not (economics). . . . Giving everybody a little bit of money. I don't know that will have a stimulative effect."

Republicans are a tougher sell, even with Obama's promise to add tax cuts to the stimulus package.

"The deficit estimate makes it clearer than ever that we cannot borrow and spend our way back to prosperity when we're already running an annual deficit of more than $1 trillion," said Rep. John Boehner, R-Ohio, the House Republican leader.

Boehner released statements from several economists questioning the value of deficit spending to prime the economy.

The U.S. Chamber of Commerce, one of the country's most prominent business groups, supports the general goal of a stimulus package that would cost as much as $700 billion and include a mix of 60 percent federal spending and 40 percent tax cuts.

However, chamber President Thomas J. Donahue warned Wednesday that Obama would need stringent controls to ensure that the temporary spending doesn't become permanent. "We've got to be very, very careful that we don't make a larger government," he said.

He said that the soaring deficit made Obama's task of pushing the stimulus package more difficult. "They're divided in many ways beyond Republican and Democrat," he said.

"These numbers are absolutely staggering. We knew the deficit numbers were going to be big, but $1.2 trillion?" said Maya MacGuineas, the president of the Committee for a Responsible Federal Budget. "Policymakers simply must put together a plan to assure the nation's creditors, as well as taxpayers, that there is a plan to repay this tremendous amount of borrowing once the economy has stabilized."

Obama worked to assure taxpayers and skeptical members of Congress that he'll work to rein in the deficits later, naming a new bureaucrat to streamline the federal bureaucracy.

He selected Nancy Killefer, a former Clinton administration official, for the new post of chief performance officer and said she'd help the Office of Management and Budget find ways to cut spending and make government more efficient.

"We are committed to changing the way our government in Washington does business so that we're no longer squandering billions of tax dollars on programs that have outlived their usefulness or exist solely because of the power of a lobbyist or an interest group," Obama said at his Washington transition office.

"Even in good times, Washington can't afford to continue these bad practices. In bad times, it's absolutely imperative that Washington stop them and restore confidence that our government is on the side of taxpayers and everyday Americans," he said.

Yet while Obama stressed that he'll inherit the $1.2 trillion deficit — and on Tuesday called the Bush administration irresponsible for adding to the national debt — he didn't identify any Bush-era policy that he'd reverse to reduce the deficits and mounting debt.

(Kevin G. Hall and David Lightman contributed to this article.)

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