Skeptical Congress, Obama advisers clash on budget
1 hour, 25 minutes ago
February 2, 2010
By Andy Sullivan
WASHINGTON (Reuters) - President Barack Obama's advisers told Congress on Tuesday it would have to take measures beyond Obama's $3.8 trillion budget proposal to cut stubborn deficits as the president headed to New Hampshire to pitch job creation plans to a recession-weary public.
The divergent messages underscored the challenge Obama faces as he prescribes short-term stimulus to boost the sluggish economy and long-term austerity measures to head off a potential debt crisis.
But even Obama's fellow Democrats on Capitol Hill questioned whether the White House budget released this week would succeed.
"As the recovery takes hold, we then must pivot and deal with the long-term debt. And the place where I'd fault this budget is I don't see the pivot," said Senate Budget Committee Chairman Kent Conrad, a Democrat.
The White House has proposed $100 billion to bring down the 10 percent unemployment rate, along with a three-year freeze on non-defense spending to help reduce budget deficits that are projected to remain unsustainably high over the coming decade.
Democrats hope to bring down the unemployment rate before the November congressional elections, when angry voters could erode their margins in both chambers.
Despite bipartisan gestures like the spending freeze and various tax cuts, Obama is likely to get little support from Republicans, who feel a wind at their backs after a surprise Senate victory in Massachusetts.
Obama arrived in the politically centrist state of New Hampshire to unveil a plan that would use $30 billion from the unpopular Wall Street bailout program for a small-business lending fund to spur job growth, although some of his first comments were focused on the budget deficits.
"These deficits won't just burden our kids and our grandkids decades from now. They could damage our markets now, they could drive up our interest rates now, they could jeopardize our recovery right now," he said.
BAILOUT 'PIGGYBANK'
Hours before he spoke, New Hampshire Republican Senator Judd Gregg blasted the small-business lending idea in a contentious hearing on Capitol Hill, demanding that the money be used instead to bring down record budget deficits.
"It's become a piggybank that adds to our deficit, adds to our debt and gets put on our children's backs," Gregg told Peter Orszag, the White House's top budget official.
The administration has proposed a fee on financial firms to recover some $90 billion over 10 years to cover the costs of the bailout. That could be extended if the bailout costs exceed that amount, Treasury Secretary Timothy Geithner told the Senate Finance Committee.
Geithner urged Congress to change the law governing the bailout money so it could be used where it is most needed.
The White House projects a record $1.56 trillion deficit for the current fiscal year, which ends September 30. That would be 10.6 percent of gross domestic product, the highest since World War Two.
The White House predicts deficits will fall to 4.2 percent of GDP in 2013 and then to 3.9 percent in 2014 and 2015. That is still above the 3 percent of GDP that economists consider sustainable.
"A bipartisan process is necessary to get us the rest of the way there," Orszag said.
That means Congress will have to do two things, Orszag said: pass healthcare reform and cooperate with a proposed bipartisan deficit-reducing commission. [THIS GUY IS REALLY FROM URANUS!]
Both of those could be difficult. The Senate and the House have passed healthcare reform bills that the White House believes would bring skyrocketing medical costs under control, but the legislation has stalled after Democrats lost their Senate supermajority in the Massachusetts election last month.
The White House plans to set up the commission by executive order after it failed in the Senate last week. But Gregg and other key Republicans say it would merely give Democrats political cover to sign off on tax hikes, and their cooperation is in doubt.
Even if all goes according to plan, the White House still forecasts U.S. public debt rising above 71 percent of GDP by 2013, up from 53 percent in 2009 -- levels that could spook investors.
That would cause borrowing costs to rise, Geithner said.
"Every American knows that the path of our deficits is too high and that if they persist long after this recession ends, they will pose a corrosive threat to our economic future," he said.
Obama's proposed spending freeze has also stirred controversy. Many liberals, including House Speaker Nancy Pelosi, have said it should apply to defense spending as well.
Spending cuts beyond those already proposed could force the Pentagon to "sacrifice force structure," Defense Secretary Robert Gates told the Senate Armed Services Committee.
No members of the committee called for a spending freeze, but Senator Jim Webb, a former Navy secretary, suggested Gates take a "good hard look" at some programs.
Gates has said he would recommend a presidential veto for any spending bill that included funding for weapons programs, like the C-17 cargo plane, that the Pentagon did not want.
(Additional reporting by John Whitesides, Glenn Somerville, Susan Cornwell, Jim Wolf and Caren Bohan; Editing by Cynthia Osterman)
