Jan. 5 (Bloomberg) -- A new Congress with strengthened Democratic majorities convenes tomorrow with one overriding goal: speed.

House Speaker Nancy Pelosi and other congressional leaders met behind closed doors today with President-elect Barack Obama to start putting together an economic-recovery package that may include more than $300 billion of tax cuts for individuals and businesses in a $775 billion stimulus measure.

With the nation in the grip of recession, tax cuts may draw support from Republicans and help efforts to approve the package in the weeks after Obama takes office on Jan. 20.

“Republicans, by and large, think tax relief is a great way to get money to people immediately,” Senate Republican Leader Mitch McConnell said yesterday on ABC’s “This Week.”

Obama, who flew yesterday to Washington to finish transition planning, met with Pelosi before a separate session with leaders from both parties. The president-elect will push for tax cuts to make up 40 percent of a stimulus package, a transition official and a Democratic aide said yesterday.

“We have an extraordinary challenge ahead of us,” Obama said today before meeting with Pelosi. He said he expects the December unemployment figures to be released Jan. 9 will be “sobering.” The figure for November was 6.7 percent, up from 4.7 percent a year earlier.

‘Very Big’

With both parties saying economic stimulus is needed, even if they disagree over its size and scope, “something very big is going to pass,” says Ross Baker, a political science professor at Rutgers University in New Brunswick, New Jersey. “The manner in which it passes is going to be very important as far as setting the tone for the rest of the session.”

Tax cuts would be designed to boost consumer demand by giving breaks worth $500 for individuals and $1,000 for couples, according to a House Democratic aide. The plan also includes various business-related tax benefits.

Federal Reserve officials, who have cut the benchmark interest rate to as low as zero to combat the recession, are backing plans for greater government spending. San Francisco Fed President Janet Yellen said yesterday that “it’s worth pulling out all the stops” in a recovery plan. Chicago Fed President Charles Evans said a “big stimulus is appropriate.”

Children’s Health Insurance

In addition to a stimulus measure, lawmakers also plan to press for early congressional action on other longstanding Democratic priorities, such as an expansion of children’s health insurance that President George W. Bush vetoed in December 2007 and legislation making it easier for workers to prevail in pay- discrimination lawsuits.

Obama will also have a rare opportunity to reshape the federal government’s current budget, for the fiscal year that started Oct. 1. Since Congress last year approved only defense and homeland-security funding, the new president and the Democrats will have a chance to quickly begin pushing more money into domestic programs Bush wouldn’t support.

Lawmakers are reconvening amid the worst economy since the Great Depression. The Dow Jones Industrial Average plunged 33.8 percent in 2008, its biggest decline since 1931; the Standard & Poor’s 500 Index’s 38.5 percent drop was the worst since 1937. November’s 6.7 percent unemployment rate was the highest since October 1993, and initial claims for unemployment benefits reached a 26-year high of 586,000 during the week ended Dec. 20.

Favorable Climate

While the economic environment is grim, Obama will enjoy a more favorable political climate when taking office than did Bush, who in 2001 had a six-seat Republican House majority and an evenly divided Senate.

In the House, Speaker Nancy Pelosi’s Democrats picked up 21 seats in November’s election, giving them a 257-178 majority. In the 100-member Senate, where it takes 60 votes to thwart the delaying tactic known as a filibuster, Majority Leader Harry Reid of Nevada could end up with as many as 59 seats, depending on the resolutions of two controversies that might be distractions in the session’s early days.

In Illinois, federal prosecutors accuse Democratic Governor Rod Blagojevich of trying to sell the appointment of a successor to Obama; Reid said yesterday on NBC’s “Meet the Press” that Senate Democrats won’t seat the governor’s choice, former state Attorney General Roland Burris, at least as long as Blagojevich remains in office. And in Minnesota, the state Canvassing Board may today certify recount results showing that Democratic candidate Al Franken defeated Republican Senator Norm Coleman; Coleman could then challenge the action in court.

Democratic Advantages

However those races turn out, the Democrats -- with their expanded majorities, the struggling economy and strong public support for Obama -- begin the year with prospects for early legislative victories, says Anthony Champagne, a political science professor at the University of Texas at Dallas.

“Obama has the advantage of an economic crisis and the advantage of coming after an incredibly unpopular administration,” Champagne says. “Their chances of success are very high.”

Early victories, in turn, would provide Obama with momentum for battles later in the year, Baker says. In particular, crafting a stimulus measure that attracts Republican votes will show how well Obama will be able to appeal across party lines, he says.

Infrastructure Spending

Obama is likely to seek a package of about $850 billion for improvements to roads, bridges and power grids; aid to states; health care and other needs. Some economists are calling for even more.

“This is an urgent priority,” Democratic Representative Chris Van Hollen of Maryland said in an interview on “Political Capital with Al Hunt” on Bloomberg Television.

“If we don’t act swiftly and boldly, we could see a much deeper economic downturn that could lead to double-digit unemployment,” Obama said Jan. 3 in his weekly radio address.

House Democrats will try to jump-start the stimulus debate with a Jan. 7 hearing before a group of Democratic leaders and committee chairmen, where economists and experts on infrastructure are scheduled to testify. Witnesses at the informal hearing are to include Mark Zandi, chief economist at Moody’s Economy.com, and Martin Feldstein, a Harvard University economic professor.

Republican Strategy

With their shrunken numbers, Republicans need to figure out how to affect the course of events without getting steamrolled, or appearing to be obstructionist.

House Minority Leader John Boehner of Ohio last week said he has reservations about the size of stimulus measures under discussion, while his Senate counterpart, McConnell, said he wants to slow the process to let lawmakers review proposed legislation and to permit Senate committee hearings. Senate Republicans still have the threat of a filibuster, reinforced by the fact that Democrats from Republican-leaning states -- including Mary Landrieu of Louisiana and Ben Nelson of Nebraska -- sometimes side with the opposition party.

Still, Republicans will be more apt to seek compromises, particularly in the early months of the year, because of Obama’s popularity and the memory of November’s losses, Baker says.

“The filibuster is a double-edged sword for Senate Republicans, and one they have to be careful not to cut themselves on,” he says.

Stimulus work also may be slowed in the Senate by that chamber’s efforts to prepare some of Obama’s Cabinet nominees for confirmation votes on Inauguration Day. Jim Manley, a spokesman for Reid, says Democrats want approval of most economic and national-security nominees on Obama’s first day in office.

In addition to the stimulus plan, last year’s $700 billion financial-industry rescue package may get a second look.

Bailout Funds

House Financial Services Committee Chairman Barney Frank of Massachusetts and other Democratic leaders in both chambers back plans for early votes to require that part of the remaining $350 billion allocated to the Troubled Asset Relief Program be used to prevent home foreclosures. Pelosi, of California, has said the Bush administration “totally ignored” language designed to use some of the money to help people in danger of losing their homes.

For congressional Democrats, Obama’s arrival marks a chance to break the gridlock that blocked many of their party’s priorities during the last session of Congress. That includes efforts to withdraw U.S. troops from Iraq, authorize federal funding for embryonic stem-cell research, lower prescription drug prices for Medicare recipients and raise taxes on oil companies to promote development of renewable energy sources.

House Democrats and representatives of Obama’s White House plan to meet in Williamsburg, Virginia, in early February to develop more detailed goals for 2009. Democratic leaders have mapped out an agenda designed to score some early victories.

Equal-Pay Act

Democrats say they will try to move legislation Bush or Republicans had blocked, including the child-health measure and the Lily Ledbetter Equal Pay Act, which would make it easier for victims of salary discrimination to receive damages in lawsuits. The measure, triggered by a Supreme Court decision, attracted six Republican votes in the Senate last year.

The March expiration of the temporary spending bill under which the government is currently operating means Obama will be the first new president since Ronald Reagan in 1981 with the opportunity to make changes to the current fiscal year’s budget priorities -- before turning to a fiscal 2010 budget request that will leave an even deeper imprint.

The result, says Scott Lilly, a senior fellow at the Center for American Progress in Washington and a former Democratic staff director of the House Appropriations Committee, is that Obama will be “able to come in and within weeks express his views on the funding of almost every agency and department of the federal government outside the Defense Department.”

To contact the reporter on this story: Laura Litvan in Washington at llitvan@bloomberg.net

Last Updated: January 5, 2009 14:20 EST