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Deficit plan draws praise from both parties

But enthusiasm is tempered by jobless report

By Lori Montgomery
Washington Post / December 4, 2010

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WASHINGTON — An unexpected groundswell of support was building yesterday around an aggressive blueprint for cutting long-term spending, raising taxes, and stabilizing the growing national debt, as lawmakers in both parties called on President Obama to embrace the proposal and launch a serious effort to rebalance the federal budget.

Eleven of the 18 members on Obama’s fiscal commission voted to endorse the package, short of the 14 needed to force quick action in Congress. But three Republican and three Democratic lawmakers were among those voting “yes,’’ a show of bipartisan support that Senator Richard Durbin, an Illinois Democrat and a commission member, hailed as a “breakthrough.’’

The reality of deficit reduction remains more complicated, though, particularly against a backdrop of stubbornly high unemployment and strident calls for short-term spending to boost the economy. The Bureau of Labor Statistics released a surprisingly weak jobs report yesterday showing that the unemployment rate jumped to 9.8 percent in November. Emergency jobless benefits expired this week, and the price for keeping them flowing through next year, as Democrats favor, is $56 billion.

Meanwhile, tax cuts enacted 10 years ago during record surpluses are set to expire New Year’s Eve, and the two political parties are waging a bitter battle to extend some or all of them, which would add trillions of dollars to future deficits. Even as they applaud the commission’s work, lawmakers have demonstrated little appetite for the painful job of raising people’s taxes and cutting their federal benefits.

Many economists, including Federal Reserve Chairman Ben Bernanke, argue that this would be the wrong time to pursue austerity measures. They say fresh spending and tax cuts may worsen deficits in the short term but could shrink them in the long run by boosting economic growth, business profits, and personal paychecks, all of which increases the flow of tax revenue to federal coffers.

“If the unemployment rate were at its prerecession level of 4.5 percent, we would have, at most, a modest deficit,’’ said Dean Baker, codirector of the left-leaning Center for Economic and Policy Research, who has called forcefully for Congress to abandon its obsession with deficit reduction in favor of more spending on job creation.

The commission’s plan to slash deficits by $4 trillion by the end of the decade seeks to account for those concerns by delaying austerity measures until 2013 and urging adoption of a payroll tax holiday that would leave as much as $100 billion in the pockets of consumers next year.

Meanwhile, in year-end negotiations with Congress, the Obama administration is pressing for as much as $150 billion in fresh stimulus. In addition to preserving Bush-era tax breaks for the middle class and extending jobless benefits for another year, Obama wants to extend a host of tax breaks enacted as part of the 2009 stimulus package, including his signature “Making Work Pay’’ tax cut for middle-class families.

Austan Goolsbee, chairman of the White House Council of Economic Advisers, said the risk to the economy is significant if Congress fails to act. Gridlock, he said, would leave 2 million jobless workers facing the holidays without an unemployment check, and everyone else looking at a potentially sharp tax increase in January.

“Any recovery is always fragile at the beginning . . . and you’ve got to make sure you don’t pull the rug out from under the middle class at this moment,’’ Goolsbee said.

The White House is deep in negotiations with the GOP over those and other year-end issues, and less focused on the recommendations of its fiscal commission. Obama, who was visiting troops in Afghanistan, issued a statement yesterday praising the commission’s work and vowed to consider its recommendations when shaping his next budget request in February.

“Over all, my goal is to build on the steps we’ve already taken to reduce our deficit,’’ Obama said. “I don’t doubt our ability to meet this challenge, but our success depends on our willingness to engage in the kind of honest conversation and cooperation that hasn’t always happened in Washington.’’

But an enthusiasm divide was already evident, less between two parties than between the House and Senate. In the Senate, a growing number of lawmakers urged the administration not to let the commission’s work fade away. But House leaders were markedly less enthusiastic.