Senior Senate Democrats are growing frustrated by what they see as President Obama's passivity on the economy, and are beginning to discuss a large infrastructure package funded by tax increases.
Some Democrats, such as Iowa Sen. Tom Harkin, who serves as chairman of the Health, Education, Labor and Pensions Committee, think such a package could lower the unemployment rate by as much as two percentage points.
But the plan is not without political risk - Republicans would be quick to slap Democrats with the old "tax-and-spend liberals" label. And the prospect of passing such a plan through the GOP-led House of Representatives - where conservative freshmen hold significant clout - is slim.
"I am concerned about the Obama administration's approach on this," Harkin said. "It always has been about jobs. I think the administration kind of got snookered talking about the deficit and the debt after the last election.
"The last election was about jobs and the economy, and now we're in a position where we really do need some economic pump-priming by the federal government," he said.
Sen. Jay Rockefeller (D-W.Va.), chairman of the Senate Commerce Committee, endorsed Harkin's argument for more infrastructure spending, and said it is gaining support in the broader caucus.
"There's very broad support," Rockefeller said. "There's no other way to get at this problem."
Rockefeller said a spending package was discussed at several meetings Wednesday and that there's a recognition Democrats need to be tougher in negotiations with Republicans.
"We have to be much more aggressive about all this, because as soon as they say 'We're not going to do that,' as they've been saying for so long about so many things, you just kind of say 'oh.' We've got to stop saying 'oh,' " he said, referring to the hard line Republicans have taken for Medicare cuts and against tax increases.
Even centrists like Senate Budget Committee Chairman Kent Conrad (D-N.D.) say a major infrastructure package funded by tax revenue-generating measures is what's needed to strengthen the economy. But Conrad wants a smaller package than some of his more liberal colleagues. He has suggested $100 billion in infrastructure spending.
Conrad estimates the Treasury loses about $1.1 trillion in revenue a year in special tax breaks - or what some Democrats call tax expenditures. Some of these tax breaks - subsidies for oil companies and breaks for companies that relocate factories overseas, for example - could be ended to fund infrastructure projects.
"We have a significant shortfall in the trust fund to pay for transportation. How do you pay for it? You got to pay for it with other spending cuts or additional revenue," Conrad said. "I would prefer to go after offshore tax havens to pay for it."
Conrad, citing data from the Permanent Subcommittee on Investigations, said closing these offshore tax havens could generate up to a $100 billion a year.
Senior Democrats discussed the prospect of a major infrastructure package at meetings Wednesday, and several endorsed the idea, according to Democratic sources.
Jared Bernstein, former chief economist to Vice President Biden, said Democrats should not shy away from spending money to energize the economy.
"There are some things you can do without spending money, but that's obviously a very tough constraint and not one that politicians should accept," he said.
Bernstein, who met with the Democratic Caucus Thursday, said it would be ambitious to hope that more infrastructure spending could reduce unemployment by 2 points, but nevertheless said it's a smart idea.
"Given the realities and politics around it, any package that would create some jobs through infrastructure investment, I would support," he said.
Even if Democrats can move a significant infrastructure-spending package paid for by closing tax subsidies through the Senate, pushing it through the House would be much tougher.
"It would never get through the House of Representatives," Conrad said.
But it might have a better chance if it were added to a massive deficit-reduction package that saves $4 trillion or more over the next decade.
Democrats are concerned about a report released last week by the Labor Department showing the economy added only 54,000 jobs in May and that the unemployment rate increased to 9.1 percent.
Democratic leaders have felt their hands tied by the $1.6 trillion federal deficit and a constant barrage of Republican criticism over spending.
Centrist Senate Democrats facing tough reelections are even reluctant to raise the national debt ceiling if a plan is not accompanied by spending cuts. This has underscored the political reality that jobs legislation cannot pass if its costs are not offset by tax increases or other cuts.
The tight budget picture has forced Democrats to advance relatively modest jobs bills, such as the reauthorization of the Economic Development Administration, now pending on the Senate floor. Democrats want to boost the agency's budget to $500 million a year, a small increase compared to the roughly $15 trillion national economy.
"It's small but it's helpful, it's in the area where unemployment is, which is largely unskilled people who need a manufacturing-type job," said Sen. Dianne Feinstein (D-Calif.).
Without ending tax breaks to fund new stimulus legislation, jobs bills will have to remain modest.
