Obama sweetens stimulus for GOP

Despite Barack Obama’s decision to include as much as $100 billion in business tax breaks to his economic stimulus package to woo reluctant Republicans, obstacles to speedy, bipartisan passage remain.

The president-elect began working Monday in pursuit of twin goals -- reviving the economy and transforming the political climate in Washington -- by including GOP leaders in his first round of Capitol Hill meetings since the election. He pitched the need to act fast and with a broad consensus.

Obama is proposing to devote about $300 billion to tax cuts in a stimulus package that may total as much as $775 billion. About half of those cuts would be tax credits of up to $500 for workers earning less than $200,000 a year, although details of the plan are being worked out. The package also contains about $100 billion in business tax cuts that many conservatives have been advocating.

“I think he would like to have a large bipartisan vote in favor of this package. And he knows, even before we mentioned it, that the way to do that is obviously for it to have elements that are appealing to Republicans,” Senate Minority Leader Mitch McConnell (R-Ky.) said after a 90-minute meeting that Obama held with Democratic and Republican congressional leaders Monday.

“I think he’s already been listening to the suggestions we’ve made,” McConnell said.

At the same time, McConnell and House Minority Leader John A. Boehner (R-Ohio) said they were not ready to endorse the overall stimulus proposal. And other high-level Republicans voiced concern that, as appealing as tax cuts were, the overall plan raised concerns in terms of its impact on the federal deficit.

House Minority Whip Eric Cantor (R-Va.), speaking after the closed-door meeting with Obama, said, “I think there would be a lot of support” for tax cuts among the GOP rank and file. But, he added, “we cannot afford to be burdening our children and our grandchildren with an extra trillion dollars in debt.”

Even before Obama returned to Washington on Sunday from his holiday break in Hawaii, Republicans were saying his stimulus program should be subjected to the normal system of hearings and full debate, rather than rushed through to meet the economic emergency -- especially at the cost of raising the deficit.

On Monday, the president-elect said he was looking for a balanced stimulus plan that addressed the needs of businesses as well as consumers and that he hoped Congress would pass by the first week of February.

“It’s clear that we have to act and we have to act now to address this crisis and break the momentum of the recession, or the next few years could be dramatically worse,” Obama said. “And the most important message today is that the situation is getting worse, we’ve got to act boldly, and we’ve got to act swiftly. We cannot delay.”

Democratic congressional leaders pledged to move quickly.

“We know what the time constraints are,” said House Speaker Nancy Pelosi (D-San Francisco). “They are dictated by the sense of urgency that the American people have about their economic well-being.” Pelosi would not commit to a specific timetable, however.

Obama is set to provide more details of his stimulus plan in a speech later this week. The majority of the package would be new government spending, with a focus on roads, bridges and other infrastructure projects.

He said the bulk of the proposed tax cuts reflected his campaign pledge to help middle-class families.

“There is a happy convergence between what I had pledged during the campaign and what’s required for the economy, right now, to put more money into the pockets of ordinary Americans who are more insecure about their jobs, who are continuing to see rising costs in an area like healthcare, who are struggling to make ends meet,” Obama told reporters after a meeting with his economic team Monday.

The largest component of the cuts would be a refundable tax credit of $500 for most individuals and $1,000 for married couples. The credit, which Obama outlined during the campaign, would reduce the Social Security payroll taxes that are automatically withheld from people’s paychecks.

People earning more than $8,000 a year would get the full cut, according to an Obama transition official who declined to be named because he was not authorized to discuss the stimulus plan publicly. Those earning more than $200,000 would not qualify. If Congress passes the stimulus package quickly, people will see the change in their paychecks by midyear.

“So if you were a married couple and your tax credit was $1,000, then just as soon as the IRS can make that change, you would see your paycheck go up by $40 every other week,” the official said.

The tax incentives for businesses are designed to encourage job creation and investment in equipment. Small businesses would be allowed to deduct up to $250,000 of their expenses through the end of 2010 -- a two-year extension designed to free up capital for new investments. The plan also would extend net operating losses to five years, to make it easier for businesses to borrow money.

“That’s Republican bait,” said Ross Baker, a congressional expert at Rutgers University. “It’s difficult for many Republicans to vote against a large tax cut.”

Obama is trying to jolt the economy while sparking the political change he campaigned on, Baker said. “The immediate impact is economic. The long-term impact is political. He’s concerned with both of those with this package.”

Many Republicans have expressed concerns about increased government spending as deficit projections for this fiscal year have soared past $1 trillion.

But the tax cuts are an appealing form of stimulus in two ways: They reduce the amount of direct government spending while providing what conservatives say would be a more effective spur to the economy.

“I suspect this will make it much more attractive to a lot of Republicans,” said former Rep. Pat Toomey (R-Pa.), president of the fiscally conservative Club for Growth. “I don’t know whether it will be enough to make our organization endorse the bill. But it certainly is moving it in the right direction.”

The U.S. Chamber of Commerce also said it was encouraged that tax cuts would be a major part of the stimulus proposal.

“Significant tax relief will spur consumer spending, business investment and help jump-start the economy,” said R. Bruce Josten, the business group’s chief lobbyist.

Jim Horney of the nonpartisan Center on Budget and Policy Priorities said the middle-class tax credits would help the economy by giving money to people who need it most.

“What history has shown is they’re very likely to spend it. They’re having a very hard time meeting their day-to-day needs,” Horney said.

He was less thrilled by the business tax cuts, which he said could help stimulate the economy if they’re given to companies that would actually spend the money on new jobs and investments.

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jim.puzzanghera@latimes.com

cparsons@tribune.com

Times staff writers Richard Simon and Maura Reynolds in Washington contributed to this report.