• Cover Story
• Table of
  Contents
• Contents By
  Topic
• Columns
  • Brownstein
  • Cook
  • Crook
  • Rauch
  • Stokes
  • Schneider
  • Taylor Jr.
• Regular
  Features
  • Hotline Extra
  • Inside Washington
  • Insiders Poll
  • K Street Corridor
  • People
  • The Week on the Hill

The politics of President Obama's economic recovery plan are so complex partly because the legislation attempts to do two things at once. The best response, paradoxically, may be to add a third ingredient.

The plan directs huge sums toward both short-term stimulus (primarily tax cuts and payments to states) and long-term investment in health care, energy, education, and infrastructure. These related but distinct goals have muddled the plan's definition and opened it to easy attack.

"We are definitely losing the framing of what this thing is," frets one veteran Democratic operative.

Because the package has been sold mostly as a short-term employment boost, the long-term investment portion is vulnerable to the charge that it doesn't immediately create many jobs. That's a reasonable complaint. The bill's big funding increases for scientific research, K-12 education, and college loans may generate some near-term jobs, but they are included largely because Obama considers such investments essential for long-term growth.

A chorus of Republicans and some independent fiscal hawks (such as David Walker, president of the nonpartisan Peterson Foundation) are urging Obama to separate the investment from the stimulus. If he did, the plan might attract some additional Republican votes on its final laps.

But the administration, while expecting the Senate to scale back investment spending, is understandably dubious about jettisoning very much. Most of the congressional Republicans demanding separation want to eliminate the investment agenda, not just defer it. Severed from the stimulus package, Obama's investments might never overcome scorched-earth GOP resistance.

By building their own recovery proposals around tax reduction, leading Republicans are effectively demanding that Obama continue President Bush's economic strategy of tax cuts uber alles. After eight years of income stagnation and substandard job growth under Bush, Obama has ample justification to demand a new approach. Yet he's in danger of losing not only Republican congressional support but the nation's confidence because the debate now is focused solely on his spending proposals (stimulus and investment). Even if Obama passes his plan, he risks allowing Republicans (despite Bush's fiscal recklessness) to rebrand Democrats as big spenders. "We are definitely losing the framing of what this thing is," frets one veteran Democratic operative.

For Obama, the key to recasting the debate may be reaffirming his commitment to long-term fiscal discipline. The president has pledged to hold a summit to tackle the soaring deficit when he releases his budget later this month. But he has muted that discussion while pushing the spending plan. All signs suggest that's a mistake. The best way to maintain public support for significant federal investment isn't to pair it with more tax cuts (as Republicans prefer) but to ground it in a solvency plan that would better balance Washington's commitments and resources after the recession eases -- by both raising taxes and restraining other spending, particularly on entitlements.

Today's crisis atmosphere allows Obama to increase investment without making those tough choices. But he won't be able to sustain robust public investment if entitlements continue to devour an ever-increasing share of the federal budget. "There's absolutely no question about that. None," says Senate Budget Committee Chairman Kent Conrad, D-N.D. In 1969, public investment and payments to individuals (mostly Social Security, Medicare, and Medicaid) each constituted 31 percent of federal spending. Today payments to individuals make up 62 percent of the budget and investment just 16 percent. "You can't achieve a fiscally sustainable policy without restructuring entitlements," Walker insists.

Obama appears to recognize that entitlements could strangle investments. That's one reason he's talking about a "grand bargain" on entitlements, taxes, and spending. But he hasn't sufficiently explained what he means. He has also failed to attach enough reform to the stimulus plan's new social spending, has let House Democrats bloat too many programs, and has stayed aloof from Conrad's proposal to bracket the short-term spending boost with a commission to chart a path toward long-term solvency.

More big-ticket needs are approaching. Conrad says he thinks Obama will soon ask for as much as $500 billion (above the initial $700 billion) to stabilize the banking system, and the president's universal health care plan will cost at least $100 billion a year. Washington can't shoulder such costs, much less simultaneously increase investment, without eventually generating significant savings from existing entitlements -- and more revenue than the tax code now provides. The sooner Obama clarifies his plans for attacking those deeper challenges, the better positioned he'll be to fund the initiatives he considers indispensable for lasting prosperity.