Hopefuls' grand plans may be delayed

Financial crisis to bring hard choices

Barack Obama talked with residents at O'Keefe's Irish pub in Clearwater, Fla. He acknowledged yesterday the proposed $700 billion bailout of Wall Street may postpone some of his proposals. (EMMANUEL DUNAND/AFP/Getty Images)

Campaigns are made for promises, and the presidential candidates have made many to voters in the past 18 months. But the crisis in the nation's financial system and the prospect of chronic, large federal budget deficits will probably delay many of their most ambitious proposals.

Democratic nominee Barack Obama, who has proposed an array of expensive initiatives on healthcare, alternative energy, and infrastructure, acknowledged yesterday that the proposed $700 billion bailout of Wall Street would probably postpone some of his proposals. "I think we're going to have to phase it in," he said on NBC's "Today" show.

But so far he is standing by his proposal to raise taxes on the wealthy to pay for a $1,000 middle-class tax cut per household, as Republican John McCain is steadfastly saying he intends to go forward with his plan to trim corporate taxes and extend President Bush's income tax cuts.

Asked about what proposals he might curtail, McCain told reporters in Michigan yesterday, "The way out of this is to grow our economy, cut spending, keep taxes low."

Even before the fiscal storm hit in recent weeks, the next president faced difficult choices in dealing with the nation's sagging economy in a time of war. Now, managing the Wall Street crisis will dominate the new administration's agenda and limit the new president's options for other initiatives, campaign observers said.

"If a new president says, 'Had I known about these circumstances, I wouldn't have made these promises, and I'll do them whenever I can,' I think he can get away with that in the short run," said Stephen J. Wayne, professor of political science at Georgetown University.

"A president needs to put forth a program. If so many resources have been taken away by the war in Iraq and a bailout of the financial institutions, it will deprive him not only of the economic resources to accomplish it but also the imagination and focus of the country to deal with any new programs," said Doris Kearns Goodwin, a historian and presidential biographer.

Both Obama and McCain outlined their ambitious agendas in convention acceptance speeches before the enormity of the financial turmoil became clear with the string of bankruptcies, buyouts, and bailouts. But yesterday they and their campaigns insisted that they can carry out their tax and spending proposals.

Obama said his proposed middle-class tax cuts remain "absolutely necessary" and asserted he can find ways to pay for his programs in ways that would not be affected by the bailout. He did acknowledge yesterday, "It would be irresponsible to say I am not going to take into account what things look like" if he takes office in January.

McCain's top economic adviser, Douglas Holtz-Eakin, said yesterday: "The recent budget news has made clear that the challenge is greater, and the importance magnified. But it does not undermine the soundness of the overall strategy."

Not yet calculated is the eventual budget impact of the proposed Wall Street rescue plan, the federal government's takeover of failing mortgage giants Fannie Mae and Freddie Mac, and its acquisition of one of the world's largest insurers, American International Group. Even before those are factored in, however, the Congressional Budget Office this month projected the budget deficit for the fiscal year that ends next week at $407 billion, up from $162 billion in 2006-07, and next fiscal year at $438 billion, which would break the record of $413 billion in 2004.

Budget office director Peter R. Orszag is scheduled to testify this morning before the House budget committee on the fiscal impact of the federal responses to the upheaval in the markets.

If implemented in full, the tax proposals of either McCain or Obama would dramatically increase annual budget deficits and drive up the total national debt - the sum of all the annual deficits and already $9.5 trillion - according to an analysis by the nonpartisan Tax Policy Center, run by the Urban Institute and Brookings Institution in Washington. McCain's proposals would add about $5 trillion to the national debt over 10 years, and Obama's about $3.5 trillion, the study said.

Those figures are based on President Bush's tax cuts expiring by the end of 2010, as current law says. Both candidates want to extend the tax cuts for those making less than $250,000 a year; McCain also wants to continue the tax cuts for those making $250,000 a year or more.

The center also calculated that McCain's proposal for a $5,000 tax credit for a family that purchases its own healthcare would increase the debt an additional $1.3 trillion over 10 years. His plan would cut the number of uninsured by 5 million people by 2013, the study said.

Obama's plan to make low-cost insurance available and subsidize insurance for lower-income families would cost $1.6 trillion over that same period, the center estimated. His proposal would reduce the uninsured rolls by 18 million people by 2009, the study said.

The campaigns say the analysis does not take into account their plans to cut healthcare costs.

"Anything involving a big budgetary outlay will have to be delayed," said Wayne, a specialist on the US presidency and government.

Wayne said the next president will face a challenge of finding ways to stimulate the economy without threatening the government's creditworthiness.

"The federal government is going to be on very lean rations," agreed Ross K. Baker, professor of political science at Rutgers University. "It may be that this will accelerate the withdrawal of troops from Iraq because it's expensive to keep them there, and it postpones if not eliminates completely the possibility of a serious effort toward national health insurance."

Some analysts compare the current crisis to the onset of the Great Depression in 1929 and the expanded government role in the economy under Franklin D. Roosevelt after his election in 1932. "It wasn't until March of 1933 that Roosevelt got his hands on the levers of power to do something," Baker said. "By that time, most of the damage had already been done and that gave Roosevelt the advantage of having a stable ruin to operate in. Today, you walk onto the demolition site, and the bricks are still falling. It's much more hazardous terrain now."

Material from the Associated Press was used in this report.