Dark shadow

United States president-elect Barack Obama will face a host of acute economic problems on a scale not seen since the 1930s.

The spiraling financial crisis, meltdown in the housing market, and Wall Street chaos coupled with longer-term challenges like high healthcare costs and foreign energy dependence will be on the next president's to-do list.

But analysts say Obama, now a senator from Illinois, will face his biggest challenge after becoming president on January 20 in navigating a deep and potentially prolonged economic downturn.

"The United States is in a profound recession, and when the next president takes office, chances are things will look as bad or worse as they do today," says Kenneth Rogoff of Harvard University, a former chief economist at the International Monetary Fund who provided occasional advice to Obama's defeated Republican rival John McCain.

"That problem's going to be so pressing that it's going to push a lot of other items to the back of the agenda."

Many economic analysts hope that Obama puts his official economic team together quickly, perhaps by November 15 when outgoing President George W Bush hosts a summit in Washington to discuss the global financial crisis.

Among the candidates frequently mentioned for the top job of Treasury secretary are former Federal Reserve Chairman Paul Volcker, former Treasury Secretary Larry Summers and Timothy Geithner, president of the Federal Reserve Bank of New York.

Obama, whose popular support strengthened on perceptions that he has a better grip on the economic crisis, has advocated a second government stimulus package worth $175 billion that would include money for investments in infrastructure as well as another round of rebate checks.

"That's the type of package Senator Obama believes needs to happen right away," Brian Deese, the Illinois senator's deputy director of economic policy told Reuters.

Obama has promised to revamp regulations governing Wall Street, to bring down the costs of healthcare, to boost indigenous energy sources and fight climate change by setting caps on carbon dioxide emissions for big industries.

But limited resources - diverted to ease the financial crisis and fund the wars in Iraq and Afghanistan - would hamper the ability of any president to achieve many of those goals.

"These are not things that are achievable," says Jeffrey Frankel, an economist at Harvard's Kennedy School of Government.

"Energy independence is basically not achievable. Balancing the budget is not achievable. Preventing us from going into a recession? It's too late."

Deese says Obama would not allow healthcare reform to be placed on the backburner. He has proposed a national program to allow individuals and small businesses to buy healthcare similar to that available to federal employees.

On energy, Obama has emphasized massive investments in renewable energy technology as opposed to Republican calls for more offshore oil drilling and increased use of nuclear power.

The United States is facing record budget deficits of at least $500 billion. Some analysts say the deficit could go as high as $1 trillion next year.

Obama has said he would:

Enact a windfall profits tax on oil companies to give taxpayers an energy rebate.

Give businesses a $3,000 refundable tax credit for each new full-time employee hired in the US over the next two years.

Allow small business to immediately write off up to $250,000 in spending for new equipment and property through the end of 2009. The stimulus package enacted earlier this year provided for the $250,000 investment expensing limit only through the end of this year.

Eliminate capital gains taxes on investments in small businesses.

Make $25 billion immediately available for the construction and repair of roads, bridges, schools and other infrastructure.

Provide $25 billion to states to help them cope with the economic downturn without having to raise property taxes or cut vital services.

Make $50 billion in loan guarantees available and keep other options open to help US automobile manufacturers retool and develop a new generation of fuel-efficient cars. Congress has made $25 billion available.

Implement a 90-day foreclosure moratorium for homeowners making good faith efforts to pay their mortgage debt.

Extend unemployment insurance for long-term jobless workers who have exhausted their benefits, and temporarily suspend taxes on those benefits.

Temporarily allow penalty-free withdrawals of 15 percent from tax-preferred retirement accounts up to $10,000.

Suspend rules requiring retirees to begin withdrawing from retirement accounts six months after they reach the age of 70.

Increase home heating cost aid.

Instruct the secretaries of the Treasury and Housing and Urban Development to use their existing authority to more aggressively modify the terms of mortgages.

Reform the bankruptcy code to assist homeowners and remove legal impediments to encouraging more mortgage restructuring.

In the longer term, Obama would roll back some of Bush's tax cuts for the wealthy. He proposed a permanent tax cut of $500 for most individual workers and $1,000 for families. He also would eliminate taxes for seniors making up to $50,000.

To help jump-start the economy, the tax cuts would be expedited through refunds based on 2007 tax returns. He would also provide a 10 percent refundable tax credit for mortgage interest to taxpayers who do not itemize their returns.

On trade, Obama has promised to review the North American Free Trade Agreement and use trade agreements to advance good labor and environmental standards around the world. He has also promised to end tax breaks that encourage companies to shift US jobs overseas.

Agencies

(China Daily 11/10/2008 page11)