Obama Pitches his Next Moves on the Economy

He faces opposition to some new spending and to ending Bush-era tax cuts for the rich.

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President Obama headed to the hard-hit heartland, Milwaukee and suburban Cleveland, last week to talk up the economy—and to give a boost to discouraged Democrats. Speaking near Cleveland, where two weeks before Republican House Minority Leader John Boehner called for the president to fire his economic team, Obama offered a strong pushback that included proposals to aid the economy and faulted past GOP policies for creating the "worst recession of our lifetime."

Substantively, Obama focused on three elements: investing in infrastructure projects, tax breaks for middle-class families and businesses, and incentives to keep American jobs at home. The most contentious issue is his call to let Bush-era tax cuts expire at the end of the year for families with annual incomes exceeding $250,000. The GOP wants the cuts made permanent regardless of income level.

Overall, the proposals face tough prospects in Congress, even though some are similar to past Republican ideas. For instance, Obama wants to permanently extend business research and development tax credits, which President George W. Bush called for in his January 2006 State of the Union address. Obama's plan would also provide a temporary tax break to encourage business capital spending, such as purchasing equipment or making renovations. And he wants to help create jobs with further government spending to expand broadband internet access, and to rebuild roads, bridges, airport runways, high speed railroads—the kind of federal largesse that lawmakers of both parties embraced in the past.

But the estimated $180 billion price tag for direct spending and business tax breaks is raising concerns. The White House says it will be offset by measures such as raising taxes on multinational corporations and oil and gas companies. "Robbing Peter to pay Paul is not pro-growth tax policy," countered R. Bruce Joston, executive vice president for government affairs at the U.S. Chamber of Commerce.

And while Obama hoped to give Democratic candidates a positive economic agenda, some worry about backing a further "stimulus," a term now stigmatized by Republicans. "I will not support additional spending in a second stimulus package," said Colorado Democratic Sen. Michael Bennet, who faces a difficult reelection battle against Tea Party favorite Ken Buck. "We must make hard choices to significantly reduce the deficit." Bennet suggested using left over Recovery Act funds for infrastructure costs.

On taxes, conservative Democratic Sens. Ben Nelson of Nebraska and Kent Conrad of North Dakota favor extending the Bush-era tax cuts, including those for the wealthy, until the economy stabilizes. On Monday, Connecticut Independent Sen. Joseph Lieberman, who aligns himself with the Democrats, told a business group in his home state that he favors extending the tax breaks for everyone for at least another year. With the dissenting conservative Democrats and the Senate Republicans opposed to raising taxes on high-income taxpayers, Obama and Senate Democratic leaders face a very tough, if not impossible, hurdle to their plan to let the tax cuts lapse for the wealthy.

In his press conference last Friday, Obama defended last year's stimulus bill but acknowledged it hasn't done as much as necessary to help the economy recover. He dodged the question of whether his additional economic measures can be defined as a second stimulus, but said, "I will continue to stimulate growth and jobs as long as I'm president of the United States."