Washington :Barack Obama’s key economic task on becoming president will be to get swift congressional approval for a mammoth plan to revive growth through tax cuts and spurring investments.
Key Democratic party lawmakers have agreed to support the $825 billion stimulus package, but many Republicans are skeptical, saying the deficit-ridden nation cannot afford to borrow and spend its way back to prosperity.
A number of economists argue only such a mammoth plan, backed by aggressive monetary policy, can jolt the world’s biggest economy out of what is likely to be the longest recession since World War II.
“Implementation of a substantial stimulus package combined with continued monetary ease by the Federal Reserve should bring the economy out of recession before the end of the year,” said Bruce Kasman, chief economist for JPMorgan Chase.
But with consumption contracting and job losses intensifying, “it is unlikely that the picture will brighten soon,” said Kasman, chairman of the economic advisory committee of the American Bankers Association.
The consensus of the bank economists is that the economic downturn will continue through the first half of 2009.
Obama is to meet on his first full in office with his economic team in a bid to put in place moves to pull the nation out of recession.
Obama had wanted the bill incorporating the economic recovery package on his desk on Tuesday for him to sign just after taking his oath of office.
But lawmakers, including from his own party, have jostled over how the money should be spent, causing a delay and speculation on how the package could snowball to trillion dollars as economic problems worsen.
It is “the largest effort by any legislative body on the planet to try to take government action to prevent economic catastrophe,” said House Democratic lawmaker David Obey, a key architect of the bill.
Still, “we may need to do even more at a later date,” he said.
Lawmakers now expect the so-called American Recovery and Reinvestment Bill to be passed before mid-February when Congress goes into a short recess.
The plan calls for some $275 billion in tax cuts and $550 billion in investments but the underlying strategy is to create jobs -- at least three million to prevent the unemployment rate from soaring to double digits.
Some 2.6 million workers lost their jobs last year, pushing the jobless rate to a 16-year high of 7.2%, as financial turmoil stemming from a home mortgage crisis plunged the world’s biggest economy into a slump.
Key components of the stimulus package include $90 billion in infrastructure spending, $54 billion to boost energy production from renewable sources, $87 billion for medical care for low-income individuals and $79 billion to help schools and colleges prevent cutbacks.
Workers will also receive a refundable $500 tax credit.
Some Republicans, who have been pushing for business tax cuts, however question the sustainability of the plan.
Even without the stimulus plan, the US government deficit would climb to a record $1.2 trillion in the current fiscal year ending in September, said the non-partisan Congressional Budget Office.
“Of course, if you are one of those old-fashioned deficit hawks, you are now grounded for years to come,” said Irwin Stelzer, an economist at the Washington-based Hudson Institute.
“Most important, Obama recognizes that he has to tackle long-term drivers of budget deficits even as he spends money to reverse the current economic decline.”
Stelzer said a stimulus may not be a panacea but “if it succeeds in persuading consumers that an end to the recession is in sight,” it may help “prime the pump.”
“If not, America will end up burdened with debt and at the beginning of a long hard road to a sustainable recovery, which in the end will depend on the private sector,” he said.