Can Obama forge consensus over stimulus package?

An $825 billion stimulus bill aimed at reviving the US economy presents an early test of President Barack Obama's vow to overcome partisan politics and forge consensus.

Following are scenarios on the political risks Mr Obama and his fellow Democrats in Congress as well as Republican lawmakers face as they address the President's proposed package of new federal spending and tax cuts.

With Democrats in control of both Congress and the White House for the first time since 1995, the stimulus package will be their initial major test.

If the package proves effective, eases a deepening recession and creates or saves millions of jobs, the new President will be crowned a political hero. The same goes for those who helped him turn the legislation into law.

If the package fails to jump-start the economy, a now adoring public may turn against Mr Obama and he could face a tough time winning a second term in 2012.

Democrats in Congress could pay a price even sooner. The entire House of Representatives and a third of the 100-member Senate will be up for grabs in 2010. Unless the economy improves markedly, expect Republicans to gain seats in both chambers.

Mr Obama's main objective is to have the stimulus package passed by Congress, a task helped by Democratic majorities in both houses of Congress.

He also needs a bipartisan consensus of Republicans and Democrats to pass it to bolster his image as a bridge builder.

Consensus will show voters that a campaign promise to end overly partisan politics is being fulfilled.

If not, it will be seen as evidence that partisan divisions defy Mr Obama's ability to produce change, even during his so-called honeymoon period.

In his inaugural address, he said: "The old stale political arguments that have consumed us for so long no longer apply".

Commentators are watching for attempts by Republicans to block the legislation through a filibuster in the Senate. Any sustained attempt to do so would be read as defiance.

Mr Obama also risks angering Democratic allies if they perceive he works harder to satisfy Republican demands for a bigger component of tax cuts in the bill than Democratic objections.

Republican House Minority Leader John Boehner accused Democrats on Thursday of wanting to push the stimulus bill through without bothering to find common ground with Republicans.

Some Republicans also fear the bill, which Democratic leaders want to be passed by the middle of next month, is too big and is being pushed through too fast.

But Republicans want to avoid to be seen as obstructing a bill that could revive the economy in a severe recession.

Their vote against former President George W. Bush's $700 billion bank bailout in October sent the stock market reeling and hurt the presidential bid of Republican John McCain.

Republicans also want to push for tax cuts and resist wanton government spending - issues seen as core principles for their party.

If they are perceived as being overly cooperative with Democrats on those issues, they risk angering fiscally conservative supporters.

Democratic law-makers must peacefully resolve differences within the economic package - or risk riling members of their own party, particularly those pushing for more spending and fewer tax cuts or vice versa.

Democrats are under pressure to show that not only can they win power, but they can use it to improve the lives of everyday Americans.

Factbox

Some of the major provisions of the tax package the House Ways and Means Committee approved on Thursday:

For individuals:
• Creates a refundable tax credit for this year and 2010 of up to $500 for an individual and $1,000 for families. Credit phases out for individuals earning more than $75,000 and couples earning more than $150,000.

• Provides a temporary increase in the earned income tax credit for working families with three or more children.

• Allows low-income families in 2009 and 2010 to take advantage of a refundable child tax credit.

• Sweetens a refundable first-time home buyer credit for homes purchased after this month. Home buyers would not have to repay the credit unless the home is sold within three years.

• Gives a new tax credit of up to $2,500 for college expenses.

For businesses:
• Extends through this year a tax break for businesses investing in new equipment, allowing them to write off those purchases faster.

• Extends through this year a break for small businesses that allows them to immediately write off up to $250,000 in capital expenditures.

• Allows companies to write off current losses against previous tax years for up to five years. Currently, companies can only "carry back" losses for two years. The tax break would not be available to banks and other companies receiving help from the $700 billion bailout package.

• Repeals a Treasury Department ruling last year that loosened restrictions on companies in a merger claiming losses incurred by the companies they acquire. This provision raises about $7 billion over 10 years.

For state and local governments
• Allows financial institutions to buy more tax-exempt bonds. The provision is expected to help boost demand for state and local bonds.

• Eases alternative minimum tax requirements to encourage purchases of private activity bonds.

• Increases the amount of tax-preferred school construction and renovations bonds that can be issued by state and local governments.

• Creates a federal subsidy for state and local governments offering bonds that give investors credits against their federal taxes in place of interest payments.

• Creates a new category of tax credit bonds for investment in economic recovery zones.

Renewable energy breaks
• Extends tax breaks for wind facilities and other renewable energy facilities and provides other tax incentives to encourage development of renewable energy facilities.

• Authorises additional $1.6 billion of new clean renewable energy bonds as well as $2.4 billion of energy conservation bonds to finance state and local government projects to reduce greenhouse gas emissions.

• Provides an enhanced research and development tax credit for work on fuel cells, battery technology and other renewable energy and conservation technology.