CHICAGO — Facing a first-year deficit that could approach a staggering $2 trillion, President-elect Barack Obama vowed Tuesday to cut out wasteful spending wherever he finds it but insisted that the scope of the economic crisis demands an extraordinary — and expensive — response.
He declined to rule out making permanent changes that would add to future deficits, such as tax cuts or new spending programs. However, he stressed that many of his new ideas — such as middle class tax cuts — would help boost the economy now and in the future.
"We are going to have to jump-start the economy . . . but we have to make sure that those investments are wise. We have to make sure we are not wasting money in every area," he said.
"Even as we take steps to restore discipline to our budget, we also have to take the steps right now that are necessary to solve our immediate crisis," Obama said.
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As if to underscore the budget crisis likely to follow the economic crisis, the Bush administration on Tuesday unveiled an $800 billion plan to ease credit. The Concord Coalition, a nonpartisan group that advocates balanced budgets, said Tuesday that the fiscal 2009 deficit could reach between $1.2 trillion and $2 trillion.
Obama insisted that he'll strive to maintain fiscal discipline even as the federal government opens its money spigot wide to stimulate the economy. He announced that he'll appoint Peter Orszag as director of the Office of Management and Budget. Orszag is now director of the Congressional Budget Office.
"If we are going to make the investments we need, we also have to be willing to shed the spending that we don't need. In these challenging times, when we're facing both rising deficits and a shrinking economy, budget reform is not an option. It's a necessity," he said.
As all presidents do, he said he'd go through the federal budget "page by page, line by line" to root out waste.
As an example, he cited a program that paid $49 million in subsidies over four years to farmers who already were making more than $2.5 million a year each.
He also said he'd help streamline health-care billing and record-keeping to reduce costs — for consumers as well as the government.
Deficit critics acknowledged the immediate need for huge deficits but warned against locking in policies that would make the flood of red ink permanent.
"The sky's the limit," said Robert Bixby, executive director of the Concord Coalition. He guessed that the deficit, which soared from $162 billion in fiscal 2007 to $455 billion in fiscal 2008, could skyrocket to $1.2 trillion or maybe even $2 trillion in the current fiscal year.
"Even committed deficit hawks like myself understand the deficit is going to go up in the short term and with good reason. The question is whether they implement it in a way that doesn't make the long term situation worse," Bixby said.
Bixby urged temporary spending on such things as onetime tax rebates or building or repairing roads, bridges and schools. He warned against such things as permanent tax cuts or a broad expansion of health care that would lock in long-term deficits.
"They might be tempted to use the crisis as cover to implement permanent plans that were already part of the Obama agenda, such as tax cuts and health care," he said. "I disagree. You don't need permanent changes on tax and entitlement programs to stimulate the economy."
Obama agreed that, "we've got to distinguish between an immediate and temporary infusion that's going to be required to kick-start our economy and some of the structural spending that's been taking place in Washington that has created this huge mountain of debt."
However, he stood by his proposal for tax cuts, calling them a stimulus to the economy and a step at "restoring some balance to our tax code over the long term. The immediate needs of the economy and the long-term concerns that we have are not necessarily incompatible," he said.
Speaking of his election, Obama called it a "decisive win" that signaled a mandate to change the way Washington does business.
He acknowledged, however, that about 47 percent of voters wanted John McCain to win.
"In order for us to be effective, given the scope and the scale of the challenges that we face, Republicans and Democrats are going to have to work together, he said.
"And I think what the American people want more than anything is just commonsense, smart government. They don't want ideology; they don't want bickering; they don't want sniping. They want action, and they want effectiveness."
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