Obama looks at $850 billion package to help economy

WASHINGTON -- President-elect Barack Obama appears to be zeroing in on a stimulus package of about $850 billion, dwarfing last spring's tax rebates and rivaling drastic government actions to fight the Great Depression.

Obama has not settled on a final total, but after consulting with outside economists of all political stripes, his advisers have begun telling Congress the stimulus should be bigger than the $600 billion initially envisioned, congressional officials said Wednesday.

Obama is promoting a recovery plan that would feature spending on roads and other infrastructure projects, energy-efficient government buildings, new and renovated schools and environmentally friendly technologies.

There would also be some form of tax relief, according to the Obama team. Any tax cuts would be aimed at middle- and lower-income taxpayers, and aides said there would be no tax increases for the wealthy.

While some economists consulted by Obama's team recommended spending of up to $1 trillion over two years, a more likely figure seems to be $850 billion.

In addition to spending on roads, bridges and similar construction projects, Obama is expected to seek additional funds for numerous programs that experience increased demand when joblessness rises, one Democratic official said.

Among those programs are food stamps and other nutrition programs, health insurance, unemployment insurance and job training programs.

Obama advisers, including Christina Romer and Lawrence Summers, have been contacting economists from across the political spectrum in search of advice as they assemble a spending plan that would meet Obama's goal of preserving or creating 2.5 million jobs over two years.

Among those whose opinions Obama sought were Lawrence B. Lindsey, a top economic adviser to President George W. Bush during his first term, and Harvard professor Martin Feldstein, an informal John McCain adviser and the chairman of the Council of Economic Advisers under President Ronald Reagan.

Feldstein recommended a $400 billion investment in one year, Obama aides said, and Lindsey said the package should be in the range of $800 billion to $1 trillion. The aides revealed the discussions on condition of anonymity because no decisions had been reached.

"I do recommend $400 billion in year one and expect a similar amount in year two," Feldstein said in an e-mail message. "The right amount depends on how it is used."

Lindsey could not be reached.

Obama aides also pointed to recommendations by Mark Zandi, the lead economist at Moody's Economy.com and an informal McCain adviser who has been proposing a $600 billion plan.

"I would err on the side of making it larger than making it smaller," Zandi said in an interview. "The size of the plan depends on the forecast -- the economic outlook -- and that is darkening by the day."

"Even a trillion is not inconceivable," he said.

Only one outside economist contacted by Obama aides, Harvard's Greg Mankiw, who served on President Bush's Council of Economic Advisers, voiced skepticism about the need for an economic stimulus, transition officials said.

The advisers say they agree with economic forecasts that predict that without a government infusion unemployment will rise above 9 percent and not begin to come down until 2011.

Senate Majority Leader Harry Reid, D-Nev., said Wednesday that Obama has indicated that Congress will get his recovery recommendations by the first of the year.

"He's going to get that to us very quickly and so we would hope within the first 10 days to two weeks that he's in office, that is after Jan. 20, that we could pass the stimulus plan," Reid said. "We want to do it very quickly."

In a letter to Peter Orszag, Obama's choice to be White House budget chief, Reid asked, among other things, that the stimulus package include tax relief for middle-class families, including a reduction in rates and an extension of the child tax credit.

Obama's aides have said they hope to work with Republicans in writing the bill, particularly in the Senate, where the GOP could slow action if it chooses. This week, House Speaker Nancy Pelosi said Democrats were preparing their own recovery bill in the range of $600 billion, blending immediate steps to counter the slumping economy with longer-term federal spending that encompasses Obama's plan.

A stimulus package that approaches $1 trillion could run into significant Republican opposition in Congress. It also could cause heartburn for moderate and conservative Democratic lawmakers, known as Blue Dogs, who oppose large budget deficits.

"Republicans want to work with the president-elect to help get our economy on the path to recovery, but we have grave reservations about taking $1 trillion from struggling taxpayers and spending it on government programs in the name of economic 'stimulus,"' House Republican leader John Boehner said in a statement.

In February, Congress passed an economic stimulus bill costing $168 billion and featuring $600 tax rebates for most individual taxpayers and tax breaks for businesses. Pelosi largely bowed to President Bush's insistence to keep the measure free of spending on federal projects.

The upcoming effort would dwarf that earlier measure as well as a $61 billion stimulus bill the House passed just before adjourning for the elections. That measure died after a Bush veto threat and GOP opposition in the Senate.

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Associated Press writers David Espo and Erica Werner contributed to this story.