By Matthew Benjamin and Rich Miller
Nov. 5 (Bloomberg) -- Barack Obama will transform a U.S. economy reeling from the worst financial crisis since the Great Depression -- and he may not wait until Inauguration Day to get started.
He'll get his chance when Congress returns in less than two weeks for a lame-duck session with plans to pass another economic stimulus bill. Such a package would only be a down payment on Obama's economic recovery program if the Republican incumbent, George W. Bush, supports it. The rest will come when Obama is in the White House.
The Democratic president-elect has much more on his agenda, amounting to what may be the broadest overhaul of the U.S. economy since Franklin D. Roosevelt's New Deal. Beyond job creation and big investments in public works, Obama intends to shift the tax burden back toward the wealthy, roll back a quarter-century of deregulation, extend health-care coverage to all Americans and reassess the U.S. government's pursuit of free- trade deals.
``The changes will be far greater than many expect,'' said Andrew Laperriere, managing director at International Strategy & Investment Group, a money management and research firm in Washington. ``From taxes to energy to health care, it's a pretty sweeping agenda.''
In the 2 1/2 months leading up to the Jan. 20 inauguration, the president-elect's challenge will be to work with the Bush administration on a transition that is collegial without being collaborative.
Bush, partly at the behest of European leaders, will convene a summit Nov. 15 to discuss longer-term strategies to prevent another credit crisis. That could put the president-elect in an awkward position, because he'll be pressed to render his views on a meeting at which he has no official standing.
Bush's Show
It ``might not be such a good idea'' for Obama and his team ``to take a prominent role at the Nov. 15 summit,'' said Mickey Kantor, who worked on Bill Clinton's transition team in 1992 and later served as U.S. trade representative and Commerce secretary. ``It's Bush's show, and you don't want any confusion about that.''
The Illinois senator won't be so reticent about putting his imprimatur on stimulus legislation that Democrats in Congress will attempt to pass before Bush leaves office.
One of Obama's first tasks in dealing with Congress will be to decide whether such a short-term stimulus should be tied to longer-term steps to bring the federal budget closer to balance. As it is, Obama will likely become the biggest deficit spender in U.S. history. Analysts forecast the budget shortfall may triple to $1 trillion in 2009 as costs mount for financial-industry bailouts started in Bush's final year in office.
Fiscal Discipline
Former Treasury Secretary Robert Rubin, an adviser to Obama, said the stimulus package ``needs to be married to a commitment to long-term fiscal discipline.'' Otherwise, the U.S. risks ``undermining our bond market and our currency market,'' Rubin, now senior counselor for Citigroup Inc. in New York, said in an Oct. 26 television interview on CNN.
Obama has proposed a $175 billion package that includes checks for consumers, a tax credit for job creation and spending on public works such as school repairs, roads and bridges. ``We face an immediate economic emergency that requires urgent action,'' he said in outlining the plan last month.
Political analysts say the package that emerges from the lame-duck Congress could be closer to $200 billion.
``A big victory makes it more likely that a stimulus package that Obama likes passes in a lame-duck session,'' said Stan Collender, a former analyst for the House and Senate budget committee and now a managing director at Qorvis Communications in Washington.
Bigger Majority
When the new Congress convenes in January, with a bigger Democratic majority and Obama in the White House, another even larger stimulus bill may pass and Obama's focus will shift to longer-term goals.
He proposes investing $150 billion over 10 years in clean energy initiatives that he says would create 5 million new jobs. He'd also push automakers and consumers to get a million fuel- efficient hybrid vehicles on the road by 2015.
Other proposals include a fund to invest in manufacturing research, new job training programs and an infrastructure investment bank that he says will create up to 2 million jobs. He envisions a network of business incubators and a plan to deploy broadband Internet infrastructure to every community in the nation.
To stem rising foreclosures, Obama's advisers say he's looking closely at ways to help homeowners renegotiate mortgages.
Regulatory Overhaul
He wants to overhaul the agencies that oversee the financial industry and give the Fed unprecedented ability to monitor institutions' books. As part of that, Obama would create a financial-market oversight commission responsible for identifying risks before they get out of control.
To deal with the credit crunch, Obama's advisers have called for the Treasury to hasten its recapitalization of banks with the $700 billion Troubled Asset Relief Program.
One reason to expedite efforts to boost the economy and bring an end to the credit crunch is that other campaign promises the Democrat has made may work against the short-term rescue effort.
For example, Obama has promised a departure from the Bush administration policy of pursuing any and all free trade agreements, vowing instead to seek protections for workers and the environment in existing and new pacts. He said he'll ask Mexico and Canada to renegotiate the North American Free Trade Agreement to include such provisions.
Nafta `Hammer'
``We should use the hammer of a potential opt-out'' from Nafta ``as leverage to ensure that we actually get labor and environmental standards that are enforced,'' Obama said in February during the primary race for the nomination.
Since winning the nomination, the Democrat has toned down his criticism of free trade, yet his hand may be forced on the issue by powerful groups within his party, said Claude Barfield, a trade policy expert at the American Enterprise Institute in Washington.
``The labor unions and the environmental groups will pressure him,'' said Barfield. Obama's push for new conditions in trade deals ``would invite retaliation,'' and could slow trade, says Barfield.
Obama also would raise taxes on at least some Americans. He plans an overhaul of the tax code, and he'll likely get one because of stronger Democratic control of Congress and the 2010 expiration of most of the tax cuts passed under Bush.
The Democrat would increase taxes on Americans earning more than $250,000 while expanding tax relief for those with incomes under $200,000 through tax cuts or credits.
Top Tax Rate
The top marginal rate would return to the 1990s level of 39.6 percent from the current 35 percent. The rate on most capital gains would rise to 20 percent from the current 15 percent.
The overall result, according to the nonpartisan Tax Policy Center, would be lower taxes for low and middle-income taxpayers while ``taxpayers with the highest income would see their taxes rise significantly.''
Such policies could worsen the economic slump, critics say.
``History shows us if you raise taxes in a bad economy, you hurt the economy, and there was a president named Herbert Hoover, a Republican, they raised taxes, they practiced protectionism, and we went from a serious recession into a deep depression,'' Obama's Republican opponent John McCain said in an Oct. 28 interview with Fox News.
Others are less worried. Mark Gertler, a New York University economist who has studied the Great Depression, points to Obama advisers Rubin and Larry Summers, both former Treasury secretaries, and Paul Volcker, a former chairman of the Federal Reserve. ``The economists around him are too smart and too experienced to do something that would risk the recovery,'' he said.
To contact the reporters on this story: Matthew Benjamin in Washington at mbenjamin2@bloomberg.net; Rich Miller in Washington rmiller28@bloomberg.net
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