Obama pledges to tackle government spending

WASHINGTON - President-elect Barack Obama said Wednesday he'll have to juggle the competing interests of economic stimulus and deficit control, but that restoring general business health must come first.

Obama indeed offered a promise of long-term fiscal discipline at a news conference that he held just a short time after the nonpartisan Congressional Budget Office came up with a new — and unprecedented — estimate of the deficit expected for the 2009 budget year: roughly $1.19 trillion.

Such a red-ink mark on the federal ledger would dwarf last year's record of $455 billion deficit and represent more than 8 percent of the size of the economy, which is higher than the deficits of the 1980s.

Obama said that concerns about rising deficits prompted him to turn down advice from some economists who called for spending $1 trillion or more to jump-start the economy. Obama's proposal is expected to cost nearly $800 billion over two years.

"We have an economic situation that is dire, and we're going to have to jump start this economy with my economic recovery plan, creating 3 million jobs," he said. "That's going to cost some money. And in the short term, we will actually see, potentially, additions to the deficit."

He also said that by February he expects to have a plan on how to deal with big ticket spending such as Social Security and Medicare, waste in government and other factors, as well as some "specific outlines" on how to control the deficit.

"We're going to be inheriting a $1 trillion-plus deficit. And if we do nothing, then we will continue to see red ink as far as the eye can see," Obama said after introducing Nancy Killefer as his chief performance officer, a White House official who will work with federal agencies to set performance standards and hold agency managers accountable for progress.

But at Obama's transition office and in Congress, the urgent focus continued to be the economic stimulus.

House Speaker Nancy Pelosi pressed top congressional Democrats on Wednesday to pass a recovery bill by mid-February, and offered her own reassurance that the legislation would be fiscally responsible.

"Many will focus on the cost of it," Pelosi told the House Democratic Steering and Policy Committee. "While we are not discussing small sums, the bill is fiscally responsible because it will provide a fiscal dividend by returning 40 percent of the cost to the Treasury — at least that much in increased revenue."

Noting that the stimulus proposal will include spending on roads and bridges, clean energy technologies, expanded Internet access, and modernizing schools, Pelosi declared: "This is not your grandfather's public works bill."

The congressional panel heard from a handful of economists, including former Labor Secretary Robert Reich, Harvard's Martin Feldstein and Mark Zandi, chief economist at Moody's Economy.com and a former informal adviser to Republican presidential candidate John McCain. They all endorsed the need for a big, short-term spending package to jolt the economy out of its downward spiral.

Acknowledging the risk of deficits, however, Feldstein noted: "There should be an exit strategy. The spending should not create a political dynamic that makes it hard to stop."

Pelosi's call for passage by mid-February represents a slight adjustment in the Democrats' anticipated schedule for the legislation. Just on Monday, Obama had said he hoped for passage at the end of January or the first week in February.

Budget-conscious lawmakers have been pressing Obama to embrace deficit-reduction goals, even before the budget office's grim assessment Wednesday.

"Part of the discussion that needs to happen right now is not what we do just right now, but what we look to in the future — about how we get back to a balanced budget and then start to deal with this horrible, horrible national debt that we have," said Rep. Dennis Moore of Kansas, a member of the congressional Blue Dogs, a coalition of conservative and moderate Democrats.

With Democrats in control of both chambers in Congress, Obama's reassurances to budget hawks from both parties already appear to be making a stimulus package more palatable. Republican leaders sounded a cautionary note, however.

"We cannot borrow and spend our way back to prosperity when were already running an annual deficit of more than one trillion dollars," House Republican leader John Boehner of Ohio said in a statement. "I was pleased to hear the President-elect say yesterday that we need to stop just talking about our national debt and actively confront it."

AP Jobs, spending data hint at recovery In a hopeful sign for the economy, the number of newly laid-off workers filing claims for unemployment benefits fell below 500,000 last week for the first time since January.

New-home sales rise to highest level in a year Consumers log stronger-than-expected rebound Durable goods orders fall unexpectedly Recovery's pace slower than first thought

Obama has not detailed solutions for vexing problems such as growing demands on Social Security and Medicare. His prescriptions to make government accountable could easily run aground, much like those of predecessors who vowed to tackle government waste, fraud and abuse.

But lawmakers are not short on ideas. Conrad and the Budget Committee's top Republican, New Hampshire Sen. Judd Gregg, have proposed a bipartisan fiscal task force of lawmakers and administration officials that would create a plan to reduce budget deficits and lower the national debt.

Blue Dog Democrats would like to see legislation that would force Congress to pay for spending proposals with equal spending cuts or with new revenue. House Democrats this week plan to consider legislation that would require all federal agencies to undergo new audits and would call for congressional hearings when agency inspectors general find evidence of waste or fraud.

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