–In Huge Tax and Spending Deal, Obama Seeks To Boost The Economy
–Budget Experts Say Agreement Puts Pressure On Obama’s New Budget

By John Shaw

WASHINGTON (MNI) – In an interesting coincidence of timing, the
Wednesday edition of the Capitol Hill newspaper Politico includes a
glossy 50-page supplement called “Operation Austerity: Congress’s
New Agenda; Excising Excess.”

The cover story of the supplement is titled, “The End of Big
Government,” and it argues that many of the new lawmakers coming to
Washington in January are determined to reduce the size and scope of the
federal government.

Before they are sworn into office in early January, the outgoing
Congress and President Obama are trying to pass a massive $900 billion
tax cut and spending package that extends all of the Bush era tax cuts
for two years, extends unemployment insurance benefits for 13 months,
and renews a raft of expiring or expired tax cuts.

Budget experts agree that as the Obama administration scrambles to
line up support for the tax and spending agreement in the House and
Senate, it has clearly decided that it must focus its primary energy in
boosting economic growth in the near term.

A number of analysts have said the tax and spending package that is
being nailed down on Capitol Hill would provide a significant short-term
boost to the economy.

Mark Zandi, the economist most often quoted on Capitol Hill, from
Moody’s Analystics, has said the plan could help the U.S. economy to
grow by 4% in 2011 and create 2.8 million jobs.

Bob Bixby, executive director of the Concord Coalition, said that
he believes passage of the tax and spending package should provide “some
stimulus to the economy” but added that it increases the urgency for
Obama and congressional leaders to offer “very serious” fiscal plans
next year.

“To be fair, I think we need to put the cost of this package in
some perspective. It includes tax and spending items that were always
going to be renewed. But putting them into one package shows how
incredibly expensive these policies are, even for just a few years,”
Bixby said.

“Ideally the tax cut and spending bill that is being worked on now
would be combined with a serious long-term deficit reduction plan. There
isn’t time to do that this month, but it makes it very important for
both the president and Congress to offer budgets early next year that
have credible long-term deficit reduction,” Bixby says.

Bixby said that “it’s hard not to note the irony” that a week ago
Washington was captivated by the work of the president’s deficit
reduction panel which outlined nearly $4 trillion in deficit reduction
over a decade.

In a statement, The Center for A Responsible Federal Budget, a
budget watchdog group, called the shift in less than a week from intense
discussion of a serious multi-year deficit reduction plan to a $900
billion spending and tax bill “surreal.”

The budget group said Congress should “incorporate a serious,
long-term deficit reduction plan with the (tax and spending) package.”

For the past week, fiscal experts have been saying that critical
fiscal events will occur next winter and spring when the White House and
congressional leaders release their new budgets.

These budgets, experts say, must show that a credible path to
fixing the nation’s fiscal mess is at least being envisioned.

Obama will release his new budget in February. Sen. Kent Conrad,
the Democratic chairman of the Senate Budget Committee, and Rep. Paul
Ryan, the incoming Republican chairman of the House Budget Committee,
will offer their fiscal alternatives by March.

Conrad often says that Congress and the administration must begin
to at least plan for a critically important “pivot” from a fiscal policy
focused on boosting the economy to a long-term plan that moves the
federal budget toward balance.

** Market News International Washington Bureau: (202) 371-2121 **

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