Obama faces clamour for action on economy

WASHINGTON, (Reuters) – As the US unemployment rate climbs toward 10 percent, President Barack Obama is facing a  rising clamour from within his Democratic party to take new steps  to lift the economy and jump-start job growth.  

But soaring budget deficits are likely to constrain Obama’s  options as he considers ideas ranging from bolstering safety-net  programmes and extending a popular tax credit for first-time home  buyers to new initiatives such as tax incentives to encourage  business hiring.  

“The administration and the country are in a very difficult  situation,” said William Galston, a scholar at the Brookings  Institution and former policy adviser to President Bill Clinton.  

“All of the projections known to me suggest we are in for a  very extended period of higher-than-average unemployment, a more  extended period than we’ve endured for a very long time.”  

On the other hand, Galston said, “You run up against the  stubborn fact that our budget deficit is already sky high.”  

The U.S. budget deficit for the 2009 fiscal year that ended  Sept. 30 is expected to total a record $1.4 trillion, according to  the Congressional Budget Office. That amounts to 9.9 percent of  U.S. gross domestic product, up from 3.2 percent in 2008.  

Galston and other analysts said the means to alleviate the  economic distress are by no means clear. Ideas such as a tax  credit for job hiring face questions about their effectiveness and  would be costly. 

Still, the bleak jobs picture could put some of Obama’s  Democratic allies at risk in next year’s congressional elections,  unless voters are convinced they are doing all they can to help  the economy.  

Obama met on Wednesday with the two top Democrats in Congress,  House of Representatives Speaker Nancy Pelosi and Senate Majority  Leader Harry Reid, to discuss the economy. The meeting took place  at the lawmakers’ request.  

The White House has emphasized its discussions on how to spur  job growth are still in the preliminary stages.  

One dilemma for Obama is that Republicans, seizing on the rise  in the unemployment rate to 9.8 percent, argue that the $787  billion stimulus package passed earlier this year was  ineffective.  

The White House says the stimulus plan cushioned a blow to an  economy that was in dire straits and would have been in far worse  shape without the package.  

Still, perhaps out of wariness of giving Republicans further  ammunition, the Obama administration has steered clear of using  the term “stimulus” to describe the additional moves it is  considering for the economy.  

“I don’t think a second stimulus package would be very well  received around here,” Senate Budget Committee Chairman Kent  Conrad told reporters.  

But Conrad said he favored extending jobless benefits and the  home buyer credit. Extensions of such measures could be adopted  quickly, while other proposals may not be put forth until Obama’s  State of the Union address in January.  

Senate Democrats unveiled a plan yesterday to extend  unemployment benefits by 14 weeks in all 50 states. The House has  passed a narrower version of the bill that applies only to people  in states with unemployment above 8.5 percent. 
 
 Home-buyer tax credit a popular idea  

Another idea gaining momentum would involve extending and  possibly expanding an $8,000 credit for first-time home buyers  that is due to expire next month.  

The credit is available for those meeting certain income  limits and who have not purchased a home in three years.  

The real estate industry is lobbying for an extension through  2010, arguing that pulling the credit now could derail the nascent  recovery. The industry also wants it broadened to all buyers of  primary residences, not just first timers.