Obama: Tax Cuts, More Spending in Stimulus Plan

President-elect Barack Obama pledged quick work Tuesday on an economic recovery plan to include tax cuts and increased federal spending, and told the nation's governors he wants their advice in designing it.

Barack Obama

"We intend to put tax cuts into the pockets of hard-pressed middle class families, and we intend to make a down payment on the investments we need to build a strong economy for years to come," Obama said as he sat down with governors, nearly all of whom are struggling with budget deficits at home as a result of the recession.

Vice President-elect Joe Biden told the same group he hopes they will not criticize the incoming administration for raising the deficit as it tries to help them.

"Forty-one states are likely to face budget shortfalls this year or next, forcing you to choose between reining in spending and raising taxes," Obama said. "Programs for the needy are at risk. Libraries, parts and historic sites are being closed."

The recession and the accompanying increase in joblessness translate into higher health care costs for the poor, greater use of food stamps and added strain on welfare programs, and the governors are seeking help in coping.

Obama has said he will make an economic stimulus his top priority, and his aides and congressional leaders have been discussing the outlines of a measure that could exceed $500 billion over two years.

The president-elect has said his goal is to secure 2.5 million jobs.

In his brief remarks, Obama pledged a partnership with the governors, Republicans and Democrats alike.

"I will not simply ask our nation's governors to help implement our economic recovery plan," he said. "I will ask you to help design the plan."

He made a point of promising Republican governors "the same hand of friendship and cooperation that I offer Democratic governors." Obama spoke to a bipartisan group of state chief executives at historic Congress Hall that included former and possibly future political rivals.

Video: Obama speaks at governors' conference.

Among those in attendance were Republicans Govs. Bobby Jindal of Louisiana and Sarah Palin of Alaska, the GOP vice presidential nominee in this year's campaign.

Republican and Democratic governors sat at desks in the hall, with no separation by party, and gave Obama and Biden a standing ovation.

Biden singled out Palin—his debate adversary from the campaign—for thanks and said his former rival's presence there is a sign that both parties are now in it together.

"Maybe walk outside with me later and say hello to me," he said to laughter from the crowd.

The governors want Obama to provide at least $40 billion to help pay for health care for the poor and disabled and even more for infrastructure projects like road and bridge repair.

National Governors Association Chairman Ed Rendell, a Democrat from Pennsylvania, said the governors are also pressing for perhaps $136 billion in infrastructure projects like road and bridge repairs in the legislation, which Democrats hope to have ready for Obama's signature as soon as he takes office on Jan. 20.

"We're going to be talking about what the elements of an economic stimulus plan will be," said Massachusetts Gov. Deval Patrick, a Democrat.

For states, the recession has meant big reductions in tax revenues, which has forced 43 of the 50 into budget deficits.

Since virtually every state has to live under a balanced budget, governors have been forced to cut services, lay off workers and consider tax increases.

Such moves only make the economic situation more difficult, the governors say.

"Without federal help... what we will have to do is just make continuing cuts and/or raise taxes, both of which would have a further deleterious effect on our states' economy. We simply need help," Rendell told reporters on Monday. "When the economy is bad, the social service net demands grow."

Rendell said there are upward of $136 billion in infrastructure projects that are "ready to go," chiefly road and bridge repair projects that can get started especially quickly.

Water and sewer projects and school repairs are other needs.

Rendell and NGA Vice-Chairman Jim Douglas, R-Vt., met Monday with House Speaker Nancy Pelosi, D-Calif., who said Democrats will work to have the economic stimulus measure ready for Obama's signature as soon as he takes office Jan. 20.

It's expected to blend funding for infrastructure projects and Medicaid aid to the states with tax cuts, a temporary increase in food stamp payments, as well as investments in renewable energy projects and other "green jobs" initiatives.

The NGA has proposed $40 billion over two years to temporarily increase the federal government's contribution to the Medicaid program for the poor and disabled.

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