Obama's economic efforts hit wall of bad news

President Barack Obama sent his top aides to Congress Tuesday to promote his ambitious budget package as his efforts to reverse the harrowing economic slide slammed into more bad news.

The economy took another hit Monday when the Dow Jones Industrial Average plunged below 7,000 for the first time since 1997. Troubled insurance giant American International Group Inc. reported losing nearly $62 billion in the fourth quarter, the biggest quarterly loss in U.S. corporate history.

Obama also was turning his attention to global efforts to reverse the economic meltdown when he meets with British Prime Minister Gordon Brown on Tuesday.

Administration officials say the U.S. economic crisis requires bold action to right the economy and expand access to health care while providing tax breaks to middle- and low-income families.

Obama and his top aides unveiled an outline for his budget package last week, but Tuesday will provide lawmakers their first opportunity to publicly question top officials about the details.

Treasury Secretary Tim Geithner was expected to draw sharp questions Tuesday from the House Ways and Means Committee about tax increases Obama wants for people who make more than $200,000 a year. The panel also is likely to question him about Obama's declaration last week that he may be asking Congress this year for another $750 billion bailout for troubled banks.

Meanwhile, White House Budget Director Peter Orszag testified Tuesday before the House Budget Committee on Obama's spending priorities in the administration's $3.5 trillion budget blueprint for the 2010 fiscal year beginning Oct. 1.

He said Obama inherited a whopping deficit and an economy in crisis, but that should not block investments in education and an overhaul of the U.S. health care system to help the uninsured.

Orszag also defended Obama's plan to raise taxes on people making $250,000 or more, saying the tax policies of President George W. Bush transferred too much wealth to the rich.

Lawmakers in both parties question Obama's call to reduce high-income earners' tax deductions for the interest on their house payments and for charitable contributions. Also drawing fire is his proposal to start taxing industries on their greenhouse gas pollution — a move sure to raise consumers' electric rates.

Obama has been careful throughout the presidential campaign and since being elected to say he would impose higher taxes only on the wealthiest. Republicans, however, say Obama's energy proposal amounts to a tax that would increase energy costs for all Americans.

"This massive hidden energy tax is going to work its way through every aspect of American life," said Rep. Dave Camp, the top Republican on the Ways and Means Committee. "How we light our homes, heat our homes and pay for the gas in our cars, in every phase of our daily lives, we will be paying higher costs."

Under the energy plan, Obama wants to reduce the emissions blamed for global warming by auctioning off carbon pollution permits. The proposal, known as cap and trade, is projected to raise $646 billion over 10 years.

Most of the money would be used to pay for a tax credit, up to $400 a year to individuals and $800 a year to couples. The plan also would raise money for clean-fuel technologies, such as solar and wind power.

Orszag has acknowledged that the energy proposal would increase costs for consumers, but he argues that the vast majority of consumers will get tax breaks elsewhere in Obama's budget package.

The Obama administration has produced a flurry of economic plans and short-term programs in its six weeks in office, in the face of an economic downturn after the nation's housing market began its collapse last year. The bursting bubble threatened the country with a financial implosion and put the economy in reverse despite a $700 billion financial bailout package set up by the Bush administration.

The emergency fund has kept the economy on life support, but Obama's subsequent $787 billion economic stimulus package has yet to kick in. The president has already set forth a new budget outline that foresees the possible need to spend as much as $750 billion more to prop up America's banks and investment houses.

Obama has also been working to create more jobs to stem rising unemployment. On Tuesday, he said the new road-building initiative in his stimulus program will create or save 150,000 jobs by the end of next year.

Detailing his plans for employees of the Transportation Department, Obama disclosed that some 200 highway construction jobs will start within the next few weeks. To cheers, he said "we are seeing shovels hit the ground."

Of the 3.5 million jobs that Obama expects his economic recovery plan to save or create over the next two years, 400,000 of them will be targeted toward rebuilding the country's infrastructure — roads, bridges, schools, levees, dams, and commuter buses and trains, Obama said.

Later Tuesday, Obama was meeting with Brown, the British prime minister, who is laying the groundwork for the G-20 economic summit of advanced and developing nations in London next month. The summit, which Brown is chairing, is critical for improving global economic confidence.

Brown plans to deliver a tough economic message for the White House and U.S. lawmakers, whom he will address Wednesday. He is urging the United States to avoid protectionism at a time that it has populist appeal.

Meanwhile, senior Obama administration officials say the president has written to Russian President Dmitry Medvedev, suggesting that an American missile defense system in Eastern Europe might not be necessary if Moscow helps to block Iran from getting long-range missiles.

Plans for deploying U.S. missile defenses in Poland and the Czech Republic, supposedly to guard against Iranian attacks on U.S. allies in Europe, are among a host of issues that soured U.S.-Russia relations during the administration of former President George W. Bush. There had been earlier indications — but less obvious — that Obama might be willing to set aside the missile defense system.

One administration official, speaking on condition of anonymity, confirmed that Obama's letter said a missile deployment might become unnecessary if Washington and Moscow together could address "the Iran missile threat."

Medvedev said he had talked with Obama over the phone and exchanged letters with him, but added that there was "no talk about some kind of trade-off, or quid pro quo."