Politics

New Obama-backed stimulus package fails in Senate vote

A dozen Senate Democrats joined Republicans in voting against a stimulus package that would add about $80 billion to the deficit. President Obama says it will save state and local jobs.

Charles Dharapak/AP

President Barack Obama makes a statement on his small business jobs initiatives, Friday, June 11, in the Rose Garden of the White House. In recent days, Mr. Obama has been calling for Congress to pass legislation to protect jobs, warning that states could be forced into a round of layoffs, including school teachers.

By Mark Trumbull Staff writer

June 16, 2010, 7:47 p.m. ET

In a vote Wednesday, the US Senate showed a restrained appetite for more economic stimulus spending.

The vote was a procedural one, but it suggested that a stimulus package backed by President Obama couldn't pass without being scaled back in cost. It would have added an estimated $80 billion to the federal deficit over the next decade.

Supporters of the bill, which comes on top of other larger stimulus measures passed since 2008, aim to extend jobless benefits to the long-term unemployed, extend some business tax breaks, and provide aid to cash-strapped state governments.

A dozen Democrats voted with Republicans against the measure. With just 45 senators in support, it lacked a majority as well as the 60 votes needed to cut off a potential filibuster.

In recent days, Mr. Obama has been calling for Congress to pass legislation to protect jobs, warning that states could be forced into a round of layoffs, including school teachers. The president also supports $24 billion in aid to help states cope with rising Medicaid costs.

The debate over new stimulus comes as some economists worry that the economic recovery is still shaky. Most don't think the nation will dip back into recession, but a few forecasters call the odds as high as 50-50.

The calls for new federal support for the economy also coincide with a rapid rise in the federal debt – and growing concern in Congress that this poses its own risk to America's economic health.

"We know that the debt being supported in this country is unsustainable.... It's more than the American people can stand," said Sen. Kay Bailey Hutchison (R) of Texas, as the Senate weighed new options after the vote.

She said the national debt has risen above $13 trillion, and that Obama administration budget plans show "no end in sight."

In this climate, bills of this kind are no longer called "stimulus" measures. More commonly they're now called "jobs bills," and they're much smaller in scale than the $787 Recovery Act signed by Obama in early 2009. But the idea remains that by spending or cutting taxes, the government can help to revive the economy at a time when private-sector activity is weak.

Policy experts are divided over whether that strategy is working.

Federal Reserve Chairman Ben Bernanke gave qualified support for the Recovery Act recently. It has helped to create some jobs, he told a congressional panel. And he called the recovery "fragile," perhaps not ready for a quick withdrawal of stimulus.

That's a middle view among economists. Some say large new stimulus efforts are needed. Others point to academic research that calls into question the stimulus theories traced back to Depression-era economist John Maynard Keynes.

"It's not energizing. It's debilitating," says Lacy Hunt, an economist at Hoisington Investment Management in Houston.

In his view, stimulus programs may be well intentioned during hard times, but they end up reshuffling the economic pie rather than making it larger.
And because it makes the public debt larger, at a time when debt is already high, it "is a process that ends badly."

Some Democrats in Congress appear to share that concern.

After the morning vote, lawmakers worked on a potential compromise bill that could garner the needed votes.

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