Obama steps up push for added economic stimulus

U.S. President Barack Obama makes remarks on small business jobs initiatives in the Rose Garden at the White House in Washington June 11, 2010.

WASHINGTON (Reuters) - President Barack Obama and his aides are stepping up a push for further government spending to boost the economy as signs grow of the recovery's fragility.

The White House is calling for Congress to urgently pass measures to extend jobless benefits, aid cash-strapped states and provide targeted tax breaks to encourage research and development by businesses.

Obama's Democratic allies, facing congressional elections in November, have grown cautious about additional spending. Seizing on voter anxiety about deficits, Republicans have cast the administration's policies as fiscally reckless as they seek to challenge Democratic majorities in both houses of Congress.

"People are suffering out there. We want to keep this economy growing faster. We want to see an acceleration of job creation. And we have to take some steps to continue in that direction," top White House adviser David Axelrod told NBC's Meet the Press on Sunday.

His comments came a day after Obama wrote to congressional leaders, urging them to move swiftly to approve new measures to "spur job creation and build momentum toward recovery."

Senate Democrats have introduced legislation that would renew expiring unemployment benefits, and extend business and individual tax breaks. They would offset some of the bill's costs by raising taxes on hedge fund managers and other steps.

The bill complements one passed in the House of Representatives last month, which would authorize about $80 billion in new spending and add $31 billion to the deficit. The cost of the Senate version has not been estimated yet.

Obama also backs a separate measure that would provide cash to states to prevent teacher layoffs but a $23 billion version of that legislation recently failed in the Senate.

"What the president is saying is, we need to expend additional dollars to make sure that we don't have significant layoffs," House of Representatives Majority Leader Steny Hoyer, a Democrat, told ABC's "This Week."

SPENDING FATIGUE

But Hoyer acknowledged growing concern about the U.S. deficit, which reached $1.4 trillion in 2009 and which the White House projects will hit $1.6 trillion in 2010.

"I think it's accurate that there's spending fatigue, not only on Capitol Hill, but around the country. People are concerned about the debt level, and we are, as well," Hoyer said. "But clearly, you cannot not continue to stimulate an economy that is still struggling to get out of the deep ditch that we found it in about 18 months ago."

In his letter to lawmakers, Obama said last year's $863 billion stimulus halted a freefall in the U.S. economy after the worst financial crisis since the 1930s Great Depression.

The jobless aid and many of the other steps under consideration would extend provisions in last year's stimulus package, which Republicans have derided as a wasteful, big-government approach to economic policymaking.

The letter went to House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid, both Democrats, along with House Republican leader John Boehner and Senate Republican leader Mitch McConnell.

Obama warned that without additional aid, states could be forced to enact "massive layoffs" of teachers, firefighters and other employees.

Last week, state governors pressed Congress to extend a measure that temporarily increased the funds the federal government sends them for Medicaid, the healthcare program for the poor that eats up 20 percent of state budgets on average.

Without the six-month extension, estimated to cost $24 billion, states would be forced to lay off thousands of workers, the governors said. The extension was stripped from the jobs bill passed in the House but is included in the Senate bill.

"I'm concerned about the plight of teachers, firemen, policemen who face the real possibility that they may be laid off," Boehner said on "This Week" but he added such spending needed to be offset.

Boehner criticized what he said was a "spending spree in Washington" that has "run unabated."

Adding to concerns about the tepid recovery, the government reported on Friday that retail sales unexpectedly fell in May for the first time in eight months.

A week earlier, the May employment report showed businesses scaling back on hiring after a spurt in the prior two months. Private-sector payrolls grew only by 41,000 after expanding by 218,000 in April. Unemployment fell to 9.7 percent from 9.9 percent in April.

Economists fear the U.S. recovery could be further dampened by fallout from the European crisis that began in Greece.

"We don't take anything for granted. We have to keep pushing forward and we should not be careless about pulling out of our stimulative efforts too quickly," Axelrod said.

He raised the example of Japan's economic stagnation and deflation in the 1990s to warn of the dangers the United States could face if it allows the stimulus to lapse too quickly.

(Additional reporting by Lisa Lambert; Editing by Alan Elsner)