Obama's stimulus plan growing as economy contracts

Bid to add 3m jobs over two years could cost $775b

President-elect Barack Obama left his SUV at O'Hare Airport in Chicago before heading to Hawaii for a family vacation. (Jeff Haynes/Reuters)

WASHINGTON - Faced with worsening forecasts for the economy, President-elect Barack Obama is expanding his economic recovery plan and will seek to create 3 million jobs in the next two years, up from a goal of 2.5 million jobs set just last month, several advisers to Obama said yesterday.

Even Obama's more ambitious goal would not fully offset as many as 4 million jobs that some economists are projecting might be lost in the coming year, according to the information he received from advisers in the past week. That job loss would be double the total this year and could push the nation's unemployment rate past 9 percent if nothing is done.

The new jobs target was set after a meeting last Tuesday in which Christina D. Romer, Obama's choice to lead his Council of Economic Advisers, presented information about previous recessions to establish that the current downturn was likely to be "more severe than anything we've experienced in the past half-century," according to an Obama official familiar with the meeting. Officials said they are working to craft a plan that was big enough to stimulate the economy but not so big that it would provoke major opposition in Congress.

Obama's advisers had been projecting that the multifaceted economic plan would cost between $675 billion and $775 billion. It would be the largest stimulus package in memory and would most likely grow as it made its way through Congress, although Obama has secured Democratic leaders' agreement to ban spending on pork-barrel projects.

The message from Obama was that "there was not going to be any spending money for the sake of spending money," said Lawrence H. Summers, who will be the senior economic adviser in the White House.

Mark Zandi, chief economist of Moody's Economy.com who was an adviser to Senator John McCain's presidential campaign, said, "My advice is, err on the side of too big a package rather than too little." In an interview, Zandi, who lately has advised Democratic leaders in Congress, also said he would probably soon raise his own recommendation of a $600 billion stimulus.

Besides new spending, the Obama plan would provide tax relief for low-wage and middle-income workers of roughly $150 billion, Democrats familiar with the proposal said. The government would probably reduce the withholding of income or payroll taxes so that most workers received larger paychecks as soon as possible next year, an Obama adviser said.

The sorts of jobs Obama would propose to create involve construction work on roads, mass transit projects, weatherization of government buildings, and installation of information technology in medical facilities, among others.

The outlines for Obama's emerging plan, which he is developing in consultation with Congress, including some Republicans, were mostly settled last Tuesday when he met for four hours with economic and policy advisers.

Obama and his family left yesterday for a two-week holiday in Hawaii, his native state, but the advisers will take his guidance - including instructions to be "bolder," according to one - and complete a draft in time for his return on Jan. 2.

The new Congress convenes on Jan. 6. The House and Senate, with larger Democratic majorities, will likely work to pass a bill for Obama to sign shortly after his inauguration on Jan. 20.

The Obama blueprint covers five main areas of spending and tax breaks: health, education, infrastructure, energy, and support for the poor and the unemployed.

Summers said the president-elect set short- and long-term themes in choosing the plan's components: "Creating jobs for people who need them, and doing things that need to be done to lay the foundation for an economy that works for middle-class families."

At Tuesday's meeting, Romer also laid out recommendations from private sector analysts and liberal to conservative economists for a government stimulus that ranged from $800 billion to $1.3 trillion over two years. Those consulted included Martin Feldstein, a conservative economist and longtime Republican presidential adviser, who is at the low end, and Lawrence B. Lindsey, a Federal Reserve governor and Bush administration economist, who has recommended up to $1 trillion.

Even before the election, Feldstein was publicly arguing that whoever was elected should immediately begin working with Congress on a big spending package. Since then, Feldstein has also been revising his assessment upward as the economy has weakened further.

"Without action, the economy will continue to decline rapidly," he wrote in an e-mail exchange.