WASHINGTON Amid fresh predictions that the economic slump will continue into next year, Democrats on Tuesday renewed a promise to try to advance a heavy-spending economic stimulus plan before Election Day.
The effort, however, is infused with election-year politics and was rejected by the White House, which believes it to be wasteful and unproductive.
The still-emerging Democratic plan would pile more than $50 billion worth of new spending on roads, heating subsidies, aid to state governments and a further extension of unemployment benefits onto a deficit for next year that is already likely to near $500 billion. Loan guarantees for the troubled auto industry are also on the table.
"I would be surprised to see a package that would be less than, you know, $50 billion to $75 billion," said Sen. Charles Schumer, D-N.Y.
Unlike a collaborative effort early this year to enact tax rebates for consumers and tax breaks for business, there's been virtually no good-faith negotiation between Democrats controlling Congress and the White House over the contours of a possible compromise.
Instead, the Democratic effort appears aimed in large part in casting Republicans and GOP presidential nominee John McCain as out of touch on the economy.
"Middle class families are not fools. They know that the economy is not strong," Schumer said. "But apparently the president, his Republican allies in Congress, and John McCain do not."
At the same time, new deficit and economic estimates released by the Congressional Budget Office on Tuesday brought fresh evidence of the nation's worsening fiscal picture and predictions of an economy that could slide into recession.
The federal government will run a near-record deficit of $407 billion this year, CBO said, with the deficit for 2009 reaching $438 billion and could go even higher as the government takes over mortgage giants Fannie Mae and Freddie Mac and if Congress, as expected, devotes more than $60 billion to fix the alternative minimum tax to make sure more and more middle class families aren't hit by it.
The worsening deficit is largely due to continuing weakness in the economy, high energy and food prices, and the slump in the housing and financial markets, CBO said. And the economy could still slide into a recession, according to the forecast.
"The economy is likely to experience at least several more months of very slow growth," the CBO report said. "Whether this period will ultimately be designated a recession or not is still uncertain, but the increase in the unemployment rate and the pace of economic growth are similar to conditions during previous periods of mild recession."
The CBO predicts that the economy will grow 1.5 percent this year in real terms and slip to just 1.1 percent growth in 2009.
CBO's gloomy outlook was seconded by Harvard University economist Lawrence Summers and Allen Sinai, chief economist for Decision Economics, Inc., in testimony before the House Budget Committee.
"The state of the U.S. economy is a recession or recession-like conditions," Sinai said, adding that boosts in inflation could herald the return of the so-called stagflation experienced in the late-1970s and early 1980s.
Summers, a former secretary of Treasury in the Clinton administration, backed the idea of a second stimulus bill following the outlines proposed by Democratic leaders: aid to states; home heating subsidies; food stamps; infrastructure projects and unemployment benefits.
In all likelihood, Summers said, the U.S. economy is "a year or so away from a resumption of strong economic growth."
The White House and congressional Republicans are resisting the idea of a new stimulus bill and instead want other legislation, including an energy bill that would open the Outer continental shelf to oil and gas drilling and free trade agreements with Panama, Colombia and South Korea, to help the economy.
"We're not talking about a stimulus package," White House Press Secretary Dana Perino told reporters.
It's not clear that Democrats will even be able to pass a stimulus bill. Moderate "Blue Dog" Democrats recoiled at the new deficit figures and have vowed that any new steps to stimulate the economy must not add to the red ink.
Beyond the bleak short-term prospects for the Democrats' stimulus bill, the new deficit numbers promise to force the next president, whether it's Democrat Barack Obama or GOP nominee John McCain, to scale back agenda items like new tax cuts.
The agency's latest estimate of total appropriations since 2001 to fight terrorism and for operations in Iraq and Afghanistan is $858 billion.