With Economy Worsening, Obama Ponders Next Move
Life + Money

With Economy Worsening, Obama Ponders Next Move

Getty Images

As the unemployment rate inched up again in new government figures released Friday, President Obama and Democratic leaders are desperately looking for something more to do to get the economy moving again before the November midterm election.

A string of mixed economic indicators have drowned Democrats' hopes for a “recovery summer,” leaving Obama and his allies in Congress struggling to figure out what more, if anything, they can do to counteract GOP charges that their economic policies are failing and reverse their dramatic slide in the polls. While the president and Democrats are likely to score a modest legislative victory or two before the election, Republican leaders sensing a strong chance of regaining control of the House and possibly the Senate are unlikely to compromise on anything approaching a major stimulus or tax cut.

Obama told reporters today that he would unveil "a broader package of ideas next week," following published reports that the president’s economic team is considering another big dose of stimulus in the form of tax breaks for businesses - potentially worth hundreds of billions of dollars. Among the options are a temporary payroll tax holiday and a permanent extension of the research and development tax credit, according to the Washington Post.

During a brief meeting with reporters in the Rose Garden, Obama insisted that the economy was “moving in a positive direction, but acknowledged  that “jobs aren’t being created as fast as they need to, given the big hold that we’ve experienced.”

“As I’ve said from the start, there’s no quick fix to the worst recession we’ve experienced since the Great Depression,” he said. “The hard truth is it took years to create our current economic problems, and it will take more time than any of us would like to repair the damage.”

Adding to Obama's headaches, unemployment in August climbed slightly to 9.6 percent. That's up from 9.5 percent in July, according to Bureau of Labor Statistics figures released Friday morning. Private companies added 67,000 new jobs last month, more than expected, and both June and July's figures were revised upward. But overall, the economy lost 54,000 jobs in August as 114,000 temporary jobs with the Census ended. The unmployment rate climbed as more than 500,000 jobless workers who had been counted out of the labor pool returned to looking for work.

Next Moves
Obama first revealed on Monday that his economic advisers are working on new plans, such as further tax cuts and infrastructure programs. Pressed by reporters for details of Obama's plan on Thursday, White House spokesman Robert Gibbs said that discussions were still under way, though he noted that “some big new stimulus plan is not in the offing.” The Wall Street Journal reported that the White House "is struggling with whether to propose ideas that would appeal to Republicans, and thus get support on Capitol Hill — such as tax cuts — or whether to promote ideas that officials believe could have more economic impact but might hit political resistance, such as more aid for states and more infrastructure funding." 

When Congress returns from its summer recess on Sept. 13, it appears likely to pass a long-stalled bill to provide $30 billion in lending to small businesses. But after that, time will be short before lawmakers head to the campaign trail in October, and any plans would have to overcome the deficit concerns and election-year politics of Senate Republicans, who seem determined to slow the president's agenda.

Republicans have relentlessly hammered the administration, and last year's $814 billion economic stimulus package, for the persistently high unemployment numbers and other indicators showing a slow recovery. 

“We're listening to the American people, who want us to end Washington Democrats' out-of-control spending spree, stop their tax hike on American families and small business, and create jobs,” said Michael Steel, a spokesman for House Republican Leader John Boehner of Ohio. “We certainly hope Democrats will abandon their job-killing agenda and work with us.”

Because tax cuts appeal to elements of both parties, they are likely to take center stage. Republicans and Democrats want to extend big cuts that expire in 2010, though most Democrats would let them lapse for the wealthiest taxpayers.

This debate over how to extend the cuts may drag past the election, as there's little incentive to end it now. The White House is insisting that the high-income cuts expire, arguing that the resulting revenue could be put to better stimulative effect or go to reduce the deficit. “If the Republicans are bent on spending an additional $35 billion … extending the tax cuts for the wealthiest is the least stimulative way to impact our economy,” Gibbs said Thursday.

Republicans Waiting It Out
Republicans have no need to hammer out a deal, even if it entails a compromise on tax cuts for top earners, said Kenneth Kies, a top tax lobbyist at the Federal Policy Group. “Right now the Republicans have no reason to make a deal with [Democrats] on anything.  Right now, they know their leverage is going to improve dramatically.” Kies said the odds were almost as low for an agreement during a lame-duck session after the election, because Republicans will want to wait until they have more votes in their column in January.

That's a dynamic that may repeat itself no matter what the issue, even though most of the proposals are small. Among the ideas that could surface: investment in infrastructure projects; clean energy tax credits; a payroll tax holiday; and the extension of cuts that provide hiring incentives to small businesses. Outside analysts have also suggested a revenue-sharing program with states; programs like "cash for clunkers" that reward consumer spending; and boosts to economic stabilizing programs like food stamps.

Addressing Taxes
Before the end of the year, Congress may also seek to extend several other expiring business tax breaks, address the estate tax, which will jump from zero up to 55 percent in 2010, and block the Alternative Minimum Tax from hitting millions more taxpayers.

Conservatives say no one's taxes should rise until unemployment has dropped and the economy is back on track. “[Obama] seems to fail to realize that the disinclination of businesses and rich people to create jobs and expand is that they are uncertain about the future and the probability of a reasonable return to the risk involved,” said Stuart Butler, vice president of domestic and economic policy at the Heritage Foundation.

Yet making proposals that Republicans block can be a winning issue, say those on the other side of the political spectrum. “If Republicans continue their ‘just say no’ approach to governing, the administration should not give an inch in its insistence that tax cuts on the wealthiest Americans should expire,” said Henry Aaron, a senior fellow at the Brookings Institution, calling the argument for extension incoherent. “If the fiscal stimulus failed, much of which took the form of tax cuts, and if the deficit must be cut, how can more tax cuts than the president proposes be a good idea?”

Despite several reports suggesting that the economy would be worse off without the stimulus, Republican attacks seem to be taking their toll. The GOP holds a 10-point advantage in Gallup's weekly poll tracking support for generic Democratic and Republican candidates. The slow economy has also increased the criticism from the left that the stimulus was too small, not too large.

In a farewell address on Wednesday, Christina Romer, the outgoing chairwoman of the White House's Council of Economic Advisers, charged Congress to act. “The only surefire ways for policymakers to substantially increase aggregate demand in the short run are for the government to spend more and tax less," she said. “In my view, we should be moving forward on both fronts.”

“If [White House economic adviser Lawrence] Summers and company had followed [Romer's] lead and sought a larger package in the first place, or acknowledged that the package they were proposing would do little more than prevent further economic erosion, we might be in a different place,” said Scott Lilly, a senior fellow at the Center for American Progress and a former senior House Democratic aide. The White House said it could not have anticipated the depths of the crisis.

But no one seems to be holding out hope that the parties will be able to bridge their differences and enact something both meaningful and bipartisan. “In the prevailing political arena, such collaboration seems fanciful,” Brookings' Aaron said. “But it is important not to let political bad behavior stop thought about good policy.”

Edmund L. Andrews of The Fiscal Times contributed to this story. Updated at 11:42 a.m.