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Obama Administration Stimulus: White House Sees Fiscal Cliff Deal As Last, Best Hope

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OBAMA ADMINISTRATION STIMULUS
AP

WASHINGTON -- The conventional wisdom on the White House's opening offer to resolve the fiscal standoff treats one particular element of that offer -- the stimulus proposals -- as a less-than-serious addendum that will be traded away in the end. It's wrong.

Senior Democratic officials on Capitol Hill and in the White House say that the media and Republicans are mistaken to assume that the stimulus measures were included as mere bargaining chips. In fact, the Democrats say, they're important building blocks for President Barack Obama's second term in office.

That's because the "fiscal cliff" deal may be Obama's last, best chance to win spending or tax-code concessions from Republicans. Democrats and the White House know this, which is why they have chosen to draw the ire of conservatives by jacking up the short-term cost of their fiscal cliff proposal.

The specific measures -- extension of unemployment insurance benefits ($30 billion) and the payroll tax cut ($115 billion), infrastructure spending ($50 billion to $75 billion), and a series of other tax cut extenders ($27 billion) -- hardly constitute a robust stimulus package, particularly considering all the spending cuts likely to surround them in any final deal. Yet top Democrats view these measures, drawn from the president's proposed American Jobs Act, as an essential component of that deal.

"Our approach must be 'first, do no harm' to the recovery," Sen. Chuck Schumer (D-N.Y.) told The Huffington Post. "That means extending emergency unemployment benefits and, if not preserving the payroll tax cut, then replacing it with something that gives similar help to middle-class families."

A top Senate Democratic aide -- speaking about the talks, like many others, only on condition of anonymity -- was blunter in his assessment. "The idea of extending UI [unemployment insurance] is not a trade-away chip. That's essential. The idea of replacing payroll with something is something they feel very strongly about," he said. Another top Senate aide said that the stimulus is "very real" and that it has consistently been a part of every proposal Democrats have made. A top GOP aide said he wasn't sure how serious the White House is, but the stimulus has "been on every piece of paper they've sent us."

Getting these components into law will require deft backroom negotiations. A GOP aide involved in the talks said that insistence on the stimulus measures would be "just more evidence they are slow-walking us off the cliff."

Privately, top aides predict that at least one of the proposals will be sacrificed for the sake of securing Republican votes, with infrastructure spending being the most likely candidate to get the ax. The U.S. Chamber of Commerce, which has been a vocal proponent of more infrastructure spending and could help persuade Republicans to include it in a final package, declined to weigh in on the debate.

"The devil is in the details," said Blair Latoff, a Chamber spokesperson. "Until we see the plan and can discuss it with our members, it would be premature for us to comment."

The White House has also shied away from commenting on the specific components being negotiated (save the top income tax rates). But a senior administration official said that each had its merits, which he outlined: The infrastructure spending is viewed as the best for the economy because of its long-run benefits. The payroll tax cut is seen as critical because of the substantial scale of the money that would be taken out of the economy if the cut is allowed to lapse. Items like research-and-development tax credits have broad political appeal. Unemployment insurance gives a huge bang for the buck in addition to being morally important. Without an extension, some two million jobless people who've been unemployed for more than six months will be tossed off the rolls just after the holiday season.

It's easier to argue for unemployment insurance and the payroll tax cut, the administration official added, because they're current policies set to expire at the end of the year, as opposed to an increase in infrastructure spending. Still, there is a cautious optimism among Democrats that because House Speaker John Boehner (R-Ohio) was on board with including all three when he and the president nearly agreed on a grand bargain in July 2011, he might allow them to be added this time around.

But much has changed since the summer of 2011. The president is now asking for additional concessions from Boehner in the form off added tax revenues and rate hikes. And, ironically, there is concern within corners of the Democratic Party that recent celebratory economic headlines obscure what is still a fragile situation and may lesson the appetite for more stimulus.

"Most of what you're talking about -- it's keeping your foot where it is on the accelerator, which makes a lot of sense if you are thinking about the underlying economy," said Jared Bernstein, Vice President Joe Biden's former top economist and a leading proponent of addition stimulus. "You don't want to take your foot off right now."

For Democrats, the urgency of now isn't just about economic considerations. It's about political considerations as well. The likelihood of any agreement on jobs-related legislation in 2013 seems slim, so the fiscal cliff package presents the best vehicle for pursuing these priorities. The White House, congressional Democrats and allied economists all know this.

"Politically, look, I think it is a very hard lift," said Rob Shapiro, former undersecretary of commerce for economic affairs under Bill Clinton. "The president would probably have to give a bit on long-term entitlement reform. I think he would have to give a general commitment to rein in entitlement spending in these negotiations to get an agreement to put in stimulus in this package. ... The next package is his budget, and that starts next October, and that's too late."

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