Dems call for stimulus in debt deal as CBO offers warnings

Senate Democrats on Wednesday said stimulus measures should be included in a debt-ceiling deal even as a new Congressional Budget Office (CBO) report shows public debt surging to nearly twice the economy’s size by 2035.

Sen. Charles Schumer (D-N.Y.) and other Democrats said the slowing economy demands a deficit-reduction package that includes provisions to create jobs.

ADVERTISEMENT
“We can have job creation embedded as part of the deficit-reduction package,” Schumer said after a press conference touting the message.

He and other Democrats mentioned an expanded and extended payroll tax reduction as one measure that would boost an economy the Federal Reserve says is slowing, but offered no specifics on the proposal. They noted the CBO report warned near-term spending cuts could hurt the economy, and they said they would pay for their stimulus plan with other offsetting spending cuts or tax increases. 

The Fed lowered its outlook on the economy on Wednesday, predicting it would grow between 2.7 and 2.9 percent in 2011, down from an earlier 3.1 to 3.3 percent estimate in April.

Schumer argued Republicans are focusing on the deficit at the peril of the economy, and that infrastructure spending and support for clean energy are other stimulus measures that should be considered by Congress.

“It is hard to figure out why Republicans would say no for three reasons: It’s pro-business, it’s a tax cut, and many of them have supported it in the past,” he said.

Schumer suggested that opposition to the stimulus proposal could come because the GOP deliberately wants to scuttle the economy in order to prevent Obama from being reelected.

If the stimulus cannot be included in the deficit-reduction package, he said it should be passed simultaneously with that package.

Senate Majority Whip Dick Durbin (D-Ill.) said Senate Majority Leader Harry Reid (D-Nev.) had spoken to the president and vice president about the idea, and that the White House is open to it. 

It’s unclear how Democrats could get such measures through the House, however, unless they were a part of must-pass legislation to raise the nation’s debt ceiling and cut annual deficits.

House Majority Leader Eric Cantor (R-Va.) cast the CBO report as evidence that Washington needed to reduce regulatory barriers to business while cutting spending. In a statement, he criticized Democrats for proposing stimulus spending. 

Cantor did not mention the payroll tax proposal, which was supported by GOP leaders as part of a tax deal in December. During an event in Washington last week sponsored by The Hill, however, House Budget Committee Chairman Paul Ryan (R-Wis.) dismissed a short-term payroll tax holiday as a mere “sugar high” for the economy. 

Cantor was noncommittal about the idea when asked about it Wednesday. 

“I am not saying I am open to it or not open to it,” he said as he entered another round of negotiations on the debt ceiling. 

The third meeting this week of the group led by Vice President Biden came in the wake of a gloomy CBO report that underlined the stakes of the talks. 

The annual long-term budget outlook forecasts a surge in public debt this year that will rise to 70 percent of GDP by the end of fiscal 2011, compared to 62 percent by the end of 2010.

The figures are worse than those released by the CBO just a year ago.

Senate Democrats said no formal stimulus proposal would be presented at Wednesday’s meeting. The group is still reviewing various stimulus proposals and is not “wedded” to any one, Schumer told reporters.

“We’re recommending to the Biden deficit commission that they put jobs as part of what they’re doing to help stimulate the economy, because, I repeat, cutting is only part of the game,” Reid said.

He said that he was instructing committee chairmen to hold hearings in the coming weeks and come up with ideas by Aug. 1 — the eve of the debt-ceiling deadline.

The Biden talks have been focused on cutting the deficit and stimulus proposals have not previously been raised, but sources said they could be added as part of a last-minute deal near the Aug. 2 deadline.

ADVERTISEMENT
House Democrats have not made a similar call for stimulus, but House Minority Leader Nancy Pelosi (D-Calif.) and other Democratic leaders in the chamber will meet with Obama on Thursday to talk about reducing the deficit. Pelosi was angered at being marginalized during talks on a 2011 spending bill.

The CBO’s outlook presented two possible forecasts, both of which showed the nation’s finances deteriorating over the next quarter-century.

In one scenario, which is considered more likely, the Bush tax rates are continued, as are rising Medicare payments to doctors. Under that scenario, the federal debt reaches 109 percent of GDP by 2023 and would approach 190 percent in 2035.

In the other scenario, in which the Bush tax rates expire and Medicare payments are slashed, total federal debt held by the public still would grow from an estimated 69 percent of GDP this year to 84 percent by 2035.

Republicans have objected to any increase in the Bush tax rates, and the White House does not want to raise taxes on families with annual income below $250,000. 

In a blog post, CBO Director Doug Elmendorf noted that the CBO is understating the severity of the fiscal picture since it does not account for the compounded effects high debt will have in slowing the economy.

He said that budget deficits are likely to shrink in the coming years due to economic growth, but the aging baby-boomer population and rising healthcare costs make the situation after that “daunting.”

Elmendorf will testify on the numbers Thursday before the House Budget Committee.

This story was originally posted at 6:23 p.m. and updated at 8:19 p.m.


More in Finance

Senate Dems offer 'clean' bill to fund Homeland Security

Read more »