How Obama Will Stoke the Economy

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Some form of tax relief is likely, too. An additional round of rebate checks could go out, although many economists don't believe the $168 billion mailed to taxpayers last spring was terribly effective. To counter that impression, the National Retail Federation is circulating its own statistical analysis of what people did with the first $110 billion in rebates: While consumers socked much of the money into savings, the report says, they also spent $42 billion.

Alternatively, Obama could use the stimulus package to put in place the middle-class tax cuts he campaigned on, something that Rahm Emanuel, Obama's Chief of Staff, has signaled that Obama wants to do. Some argue for a different approach altogether. The Business Roundtable, for instance, is lobbying for a temporary 1% reduction in the Social Security tax rate for both employers and employees.

The prospect of a supersize, damn-the-deficit spending bill has Washington lobbyists angling to get their favored program funded in the package. "There's a lobbyist for every entity and every organ in your body in this town, and they wouldn't be doing their jobs if they didn't push their cause," says Steve Pfister, the senior vice-president for government relations at the National Retail Federation. "There will be some things that are laughable."

A Boon for Home Buyers

Many ideas that were considered—and then discarded—in last spring's stimulus debate are resurfacing. Homebuilders and real estate agents are trying to get the tax credit for first-time home buyers bumped up from $7,500 to $22,000 and have it made available to all buyers. A broad array of business groups is trying to get Congress to extend the time period during which companies can write off current operating losses against earlier profits on their tax returns. The change would allow money-losing companies to pocket tax refunds.

Others are pushing new ideas. The Business Roundtable wants Treasury to temporarily allow companies to bring earnings from their foreign subsidiaries back into the U.S. without paying income tax on them, a tough idea to swallow for many Democrats, who would like to end the favorable tax treatment of foreign profits altogether. The Roundtable also is seeking relief from a 2006 law that requires companies to do a better job funding their pensions. Meanwhile, lobbyists for the Telecommunications Industry Assn., which represents Alcatel-Lucent (ALU), Intel (INTC), and Verizon (VZ), among others, is pushing a 15% tax break for any company that expands the reach of broadband. The association is putting the finishing touches on a report contending that a 7% increase in the broadband network's reach would add $92 billion to the economy by creating 2.4 million jobs. "It won't be a hard sell," predicts TIA's vice-president for government affairs, Danielle Coffey, who has been peppering allies in Congress with calls and visits in recent days.

A "Christmas Tree"

Individually, none of these measures may be a hard sell. But collectively they add up to a pretty penny. Throw in $500 billion to the deficit, along with any additional spending that could be needed to supplement the Treasury's financial-industry rescue, and before long the shortfall could hit $1 trillion—a record 7% of GDP—or more. And while few disagree that the economy needs a hefty jolt now, fears linger that the deficit will spiral out of control just as baby boomers retire in large numbers and start to depend on Medicare, Social Security, and other federal programs. "There's a real risk of this becoming a 'Christmas Tree,'" says Leon Panetta, an adviser to Obama who was Chief of Staff and head of the Office of Management & Budget in the Clinton Administration. "You don't want to be just throwing money at the problems."

Like Obama, Clinton also campaigned on an expensive package of health-care and infrastructure spending, along with tax cuts. But then he had to backtrack in the face of a weak economy. And as with Clinton, Panetta thinks, fiscal constraints are going to force Obama to trim his ambitions. "The day he walks into the Oval Office, he'll face the largest deficit in the history of the country," says Panetta. "It's the same sobering moment Bill Clinton faced when he walked in."

With Keith Epstein and Theo Francis.
Sasseen is Washington bureau chief for BusinessWeek.