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Deficit projection 'stuns' Congress

Red-ink forecast could make it a lot harder to craft an economic stimulus package.

By Staff writer / January 8, 2009

House Speaker Nancy Pelosi (l.) says it's important "to calibrate between creating jobs ... and not getting weighed down with too much burdensome debt."

Pablo Martinez Monsivais/AP



Stunned at the prospect of a $1.2 trillion deficit this fiscal year, lawmakers in Congress are taking a harder look at how big a stimulus plan America can afford.

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Until Wednesday’s release of the Congressional Budget Office (CBO) estimate, the main topic on Capitol Hill was how big the recovery package needs to be to reverse the economy’s slide.

Now, there’s a second theme: Is there a tipping point between the stimulus needed to revive the economy and a level of borrowing and debt that’s too much for future generations to bear?

“There’s a consensus among economists that we need to do something big,” says House Speaker Nancy Pelosi. “But we need to calibrate between creating jobs – green jobs, long-term jobs – and not getting weighed down with too much burdensome debt.”
But lawmakers – and economists advising them on Capitol Hill this week – also note that the economy is in uncharted territory and that “calibrating” will be tough.

“We’ve never been here before,” said Robert Reich, labor secretary in the Clinton administration, at a forum of top House Democratic committee chairs on Wednesday.

“We are going to have to approach this in the spirit of experimentation. We have to keep an eye on what works and get rid of what doesn’t work as fast as possible,” he added.

Democratic leaders had hoped to have an economic recovery plan ready for President-elect Barack Obama to sign immediately after his inauguration on Jan. 20.

But given the tough issues to be worked out – and intense interest from committee chairs to have a hand in shaping the outcome – Speaker Pelosi and Senate majority leader Harry Reid now say they expect to get the Economic Recovery Act to the president’s desk no later than mid-February.

The CBO budget estimates fueled new questions about the size and scope of the stimulus package. The report projects that the deficit for Fiscal Year 2009 will total $1.2 trillion, or 8.3 percent of gross domestic product – the largest since 1945. This estimate does not include the further cost of the wars in Iraq and Afghanistan or the economic recovery package on the agenda in Congress.