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Senators from Barack Obama‘s own Democratic Party have raised red flags over a 300 billion dollar tax cut at the core of his stimulus plan, questioning whether it would spur growth or create jobs.
Top Obama aides launched an intense lobbying operation in Congress Thursday in a bid to drive the 775 billion dollar plan to revive the stricken US economy into law by early February.
But in the first signs of divergence between the president-elect and his former colleagues on Capitol Hill, senators sought changes to the plan, arguing more cash should be poured into infrastructure and energy renewal projects.
Senate Budget Committee chairman Kent Conrad questioned whether tax cuts would deliver the best "bang for the buck" after talks between lawmakers and Obama economic advisor Lawrence Summers and political aide David Axelrod.
He questioned the idea of giving individual taxpayers and couples a rebate of 500 to 1,000 dollars, a move designed to spur a healing wave of consumer spending.
"These marginal incentives are of marginal effectiveness," Conrad said.
"When people are afraid they are going to lose their jobs, if they get another 20 dollars a week they don’t spend it, they save it."
Conrad said members wanted to see more investment in job creation, infrastructure needs like the creaking US power grid and the development of new energy sources in the stimulus package.
Another Democrat, Senator Tom Harkin of Iowa, was also uneasy about the tax cut, saying it seemed to be another example of failed "trickle down" economics.
"What I am hearing from Mr Summers and others is that they have got perhaps a different view on it, tax breaks here and this and that," Harkin told reporters.
Democrat John Kerry also suggested pouring a larger proportion of the stimulus package into alternative energy development which he said could help ease the US reliance on expensive foreign sources of power.
"I think that energy is the greatest opportunity we have in this economy," Kerry told reporters.
Republicans have warmly welcomed the tax cut element of the package, which was surprisingly large, but are raising doubts about its impact on the budget deficit which new figures show will soar to 1.2 trillion dollars this year.
"Our economy needs help, but at the end of the day how much debt are we going to pile on future generations?" said John Boehner, who leads Republicans in the House of Representatives said.
Obama aides have dismissed the idea that the tax cut was inserted in the package to woo Republican votes with the president-elect hoping for overwhelming majorities for his stimulus plan.
The complaints emerged as Obama laid out the broad principles of the package, which he said was needed to stave off economic disaster, in a major speech in the Virginia suburbs of the US capital.
The president-elect pledged a 1,000-dollar tax cut for 95 percent of working families, to double alternative energy production in the next three years and promised a "smart" electricity grid to cut blackouts.
But Democratic senators questioned a 3,000 dollar jobs credit for employers, saying that even if small business got a tax break, they would not likely take on extra staff if consumers were not buying their products.
Despite their anxiety over some aspects of the plan, most senators were optimistic a package could be quickly agreed.
"There’s an excellent chance we’ll work together with the president-elect so that, by (mid February) the president will have on his desk solid legislation," said Max Baucus, chairman of the Senate Finance committee.
Some Democrats had hoped the package would be ready for Obama to sign when he takes office on January 20, but the legislation is now headed for congressional committees, with a target date of mid February.
Meanwhile on another crucial front in Obama’s economic recovery strategy, his economic team is scrambling to overhaul the financial rescue program for Wall Street and broaden it to include municipalities, small businesses and homeowners, The Washington Post reported Friday.
"Confronted with intense skepticism on Capitol Hill over the 700 billion dollar financial rescue program, Treasury Secretary nominee Timothy Geithner and President-elect Barack Obama’s economic team are urgently overhauling the embattled initiative and broadening its scope well beyond Wall Street" in a bid to shore up support, the Post said citing unnamed sources familiar with the discussions.
"With lawmakers stewing over how Bush administration officials spent the first 350 billion dollars, Geithner has little chance of winning congressional approval for the second half without retooling the program," the sources added.
So the incoming Treasury chief "has been working night and day on the eighth floor of the transition team office in downtown Washington with Lawrence H. Summers and other senior economic advisers to hash out a new approach that would expand the program’s aid to municipalities, small businesses, homeowners and other consumers," the report said.