New York Times examins Obama's to do list that includes health care reform
06 11 08 - 15:42
A Towering Economic To-Do List for Obama
By THE NEW YORK TIMES
The dismal state of the economy helped decide Tuesday’s presidential election. And it almost certainly will dominate the early days of the Obama administration.
Few presidents have entered office with an economy in such turmoil. Reflecting worries that the worst may not be over, the stock market continues to languish, with a 5 percent decline on Wednesday, leaving it 35 percent below its peak last fall.
The reasons are myriad: the financial system, though back from the brink, remains deeply troubled. Housing may no longer be in free fall, but plummeting values and rising defaults have impoverished many homeowners and burdened states with widening budget deficits. The once-mighty auto industry is on the verge of implosion.
Consumers who piled up credit card debt are pulling back, a major concern because their spending helped power economic growth in recent years. And with unemployment widely expected to increase to 8 percent or higher, from 6.1 percent, consumers are likely to tighten their belts even more.
Moreover, with upward of $1 trillion already pledged by the federal government to bail out the banking and housing industries, financing a growing deficit to address the problems could be difficult — and saddle the Treasury Department with high levels of debt for years to come.
But even before President-elect Obama takes the oath of office, Democrats are likely to push his agenda with urgency, because the economy otherwise could worsen quickly — complicating the task ahead. “The cost of allowing an economy to flounder is very high in lost output and rising unemployment,” said James Glassman, chief domestic economist at JPMorgan Chase & Company.
Here are some of the crucial issues that economists say will test the new administration, and how it might address them.
ECONOMIC STIMULUS: Obama Is Likely to Act Quickly
Quick passage of an economic stimulus package is high on Mr. Obama’s agenda, even more pressing for the moment than the tax package that he promoted repeatedly during his campaign.
Congress could act on the stimulus this month — but only if the president-elect signals that he favors a preinauguration special session, Congressional Democrats said. Legislators would more than likely adopt some relatively inexpensive measures rather than try to pass a much larger outlay that the Bush administration might oppose. After he takes office, Mr. Obama is likely to ask Congress for an additional economic lift, those in his camp say.
Before the election, the party leadership in Congress discussed a lame-duck session to take up a bill that would pump $150 billion to $200 billion into the economy. That would follow the $168 billion stimulus, most of it in rebate checks mailed to tens of millions of Americans earlier this year.
Those checks lifted spending a bit. But they came before the credit crisis struck in force in early September.
“We need a package that matches the problem as it exists today, and in my view that means at least $200 billion a year for a couple of years,” said a senior member of the House Financial Services Committee staff.
As private sector spending dries up, the case builds — among Republicans as well as Democrats — for the government to jump-start the economy.
“Right now, the economy is in a really deep recession,” said Kevin Hassett, director of economic policy studies at the American Enterprise Institute and a senior economic adviser to John McCain.
Like many Republicans, he wants the stimulus — whatever its size — to be a cut in tax rates, not an increase in public spending. The Obama camp also supports a tax cut, possibly front-loaded so that refund checks would go out before tax returns are filed in April. But that would be enacted after the inauguration.
As for immediate relief, Obama aides say, a lame-duck session of Congress could pass a $60 billion package of additional outlays for food stamps, extended unemployment benefits and subsidies to the states to minimize their spending cuts.
The big question is “should the Democrats risk a Bush veto in a lame-duck session,” said Jared Bernstein, a senior economist at the Economic Policy Institute and an Obama adviser, “or should they wait for Obama to take office in January to get a more effective recovery package.”
As a candidate, Mr. Obama said he would extend the Bush tax cuts of 2001 and 2003 for families whose income is under $250,000 a year. He pledged to add new tax breaks for homeowners who did not itemize deductions and more breaks for savings accounts, college costs and farming. He said he would change the alternative minimum tax so it did not affect the middle class.
To raise revenue, Mr. Obama said he would repeal the Bush tax cuts for people in the top two marginal tax brackets before their scheduled expiration at the end of 2010, and raise taxes on capital gains and dividends.
His tax plans are reminiscent of Clinton administration policies that increased taxes on the affluent but gave targeted breaks to others. He would also repeal corporate loopholes and retain an estate tax.
The nonpartisan Tax Policy Center estimated that the Obama plans would reduce revenues by as much as $2.9 trillion over a decade. The center said Mr. Obama’s incentives could strengthen the labor market, while giving further breaks to “an already favored group — seniors.” -- LOUIS UCHITELLE and JACKIE CALMES
MORTGAGES: A Pledge to Aid Homeowners
Mr. Obama has pledged to help hard-pressed homeowners, but he will have to move quickly to forestall a new wave of foreclosures.
Some in Congress favor direct mortgage relief, but others worry that the cost — on top of the bank bailout — will be too expensive.
Judging by positions laid out in his campaign, Mr. Obama might seek to change personal bankruptcy laws to help people avoid losing their homes, a step that the Bush administration and the mortgage industry have resisted.