ANALYSIS-Obama faces clamor for action on economy

By Reuters Staff
October 9, 2009

By Caren Bohan
WASHINGTON, Oct 8 (Reuters) – As the U.S. unemployment rate climbs toward 10 percent, President Barack Obama is facing a rising clamor from within his Democratic party to take new steps to lift the economy and jump-start job growth.

But soaring budget deficits are likely to constrain Obama’s options as he considers ideas ranging from bolstering safety-net programs and extending a popular tax credit for first-time home buyers to new initiatives such as tax incentives to encourage business hiring.

“The administration and the country are in a very difficult situation,” said William Galston, a scholar at the Brookings Institution and former policy adviser to President Bill Clinton.

“All of the projections known to me suggest we are in for a very extended period of higher-than-average unemployment, a more extended period than we’ve endured for a very long time.”

On the other hand, Galston said, “You run up against the stubborn fact that our budget deficit is already sky high.”

The U.S. budget deficit for the 2009 fiscal year that ended Sept. 30 is expected to total a record $1.4 trillion, according to the Congressional Budget Office. That amounts to 9.9 percent of U.S. gross domestic product, up from 3.2 percent in 2008.

Galston and other analysts said the means to alleviate the economic distress are by no means clear. Ideas such as a tax credit for job hiring face questions about their effectiveness and would be costly.

Still, the bleak jobs picture could put some of Obama’s Democratic allies at risk in next year’s congressional elections, unless voters are convinced they are doing all they can to help the economy.

Obama met on Wednesday with the two top Democrats in Congress, House of Representatives Speaker Nancy Pelosi and Senate Majority Leader Harry Reid, to discuss the economy. The meeting took place at the lawmakers’ request.

INEFFECTIVE STIMULUS PACKAGE
The White House has emphasized its discussions on how to spur job growth are still in the preliminary stages.

One dilemma for Obama is that Republicans, seizing on the rise in the unemployment rate to 9.8 percent, argue that the $787 billion stimulus package passed earlier this year was ineffective.

The White House says the stimulus plan cushioned a blow to an economy that was in dire straits and would have been in far worse shape without the package.

Still, perhaps out of wariness of giving Republicans further ammunition, the Obama administration has steered clear of using the term “stimulus” to describe the additional moves it is considering for the economy.

“I don’t think a second stimulus package would be very well received around here,” Senate Budget Committee Chairman Kent Conrad told reporters.

But Conrad said he favored extending jobless benefits and the home buyer credit. Extensions of such measures could be adopted quickly, while other proposals may not be put forth until Obama’s State of the Union address in January.

Senate Democrats unveiled a plan on Thursday to extend unemployment benefits by 14 weeks in all 50 states. The House has passed a narrower version of the bill that applies only to people in states with unemployment above 8.5 percent.

HOME-BUYER TAX CREDIT A POPULAR IDEA
Another idea gaining momentum would involve extending and possibly expanding an $8,000 credit for first-time home buyers that is due to expire next month.

The credit is available for those meeting certain income limits and who have not purchased a home in three years.

The real estate industry is lobbying for an extension through 2010, arguing that pulling the credit now could derail the nascent recovery. The industry also wants it broadened to all buyers of primary residences, not just first timers.

Reid backs a bipartisan bill to extend the credit for six months. A Senate Republican plan would expand it to $15,000.

Pelosi told a news briefing that lawmakers were considering various options on the home-buyer credit, including a possible expansion but said, “If you do, how much more does that cost?”

The business tax credit aimed at encouraging new hiring is one idea being pushed by the Economic Policy Institute, a labor-oriented think tank.

“The jobs problem right now is so so serious that we need to look at a whole range of things and this is one of them,” said Ross Eisenbrey, vice president at the institute.

“This could have a significant price tag but it’s possible that it could generate a couple of million jobs, and we desperately need to address the jobs deficit,” he said.
Eisenbrey said the institute has been talking with the administration about various ideas. In addition to the business tax credit, he said substantial spending was also needed for public-works projects and to help cash-strapped cities and states hire workers.

Meanwhile, the U.S. Chamber of Commerce is also encouraging steps that it says would “help build momentum for strong economic recovery and job growth.”
In a letter to Congress on Thursday, the Chamber urged legislation such as extending tax credits for research and development and those for the promotion of alternative fuels.
(Additional reporting by Thomas Ferraro, Kim Dixon, Andy Sullivan and Richard Cowan; editing by Philip Barbara) (

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