Obama pledges to tackle government spending

updated 6:48 p.m. ET Jan. 7, 2009

WASHINGTON - President-elect Barack Obama said Wednesday he'll have to juggle the competing interests of economic stimulus and deficit control, but that restoring general business health must come first.

Obama indeed offered a promise of long-term fiscal discipline at a news conference that he held just a short time after the nonpartisan Congressional Budget Office came up with a new — and unprecedented — estimate of the deficit expected for the 2009 budget year: roughly $1.19 trillion.

Such a red-ink mark on the federal ledger would dwarf last year's record of $455 billion deficit and represent more than 8 percent of the size of the economy, which is higher than the deficits of the 1980s.

Obama said that concerns about rising deficits prompted him to turn down advice from some economists who called for spending $1 trillion or more to jump-start the economy. Obama's proposal is expected to cost nearly $800 billion over two years.

"We have an economic situation that is dire, and we're going to have to jump start this economy with my economic recovery plan, creating 3 million jobs," he said. "That's going to cost some money. And in the short term, we will actually see, potentially, additions to the deficit."

He also said that by February he expects to have a plan on how to deal with big ticket spending such as Social Security and Medicare, waste in government and other factors, as well as some "specific outlines" on how to control the deficit.

"We're going to be inheriting a $1 trillion-plus deficit. And if we do nothing, then we will continue to see red ink as far as the eye can see," Obama said after introducing Nancy Killefer as his chief performance officer, a White House official who will work with federal agencies to set performance standards and hold agency managers accountable for progress.

But at Obama's transition office and in Congress, the urgent focus continued to be the economic stimulus.

House Speaker Nancy Pelosi pressed top congressional Democrats on Wednesday to pass a recovery bill by mid-February, and offered her own reassurance that the legislation would be fiscally responsible.

"Many will focus on the cost of it," Pelosi told the House Democratic Steering and Policy Committee. "While we are not discussing small sums, the bill is fiscally responsible because it will provide a fiscal dividend by returning 40 percent of the cost to the Treasury — at least that much in increased revenue."

Noting that the stimulus proposal will include spending on roads and bridges, clean energy technologies, expanded Internet access, and modernizing schools, Pelosi declared: "This is not your grandfather's public works bill."

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