Stunned at the prospect of a $1.2 trillion deficit this fiscal year, lawmakers in Congress are taking a harder look at how big a stimulus plan America can afford.

Until Wednesday’s release of the Congressional Budget Office (CBO) estimate, the main topic on Capitol Hill was how big the recovery package needs to be to reverse the economy’s slide.

Now, there’s a second theme: Is there a tipping point between the stimulus needed to revive the economy and a level of borrowing and debt that’s too much for future generations to bear?

“There’s a consensus among economists that we need to do something big,” says House Speaker Nancy Pelosi. “But we need to calibrate between creating jobs – green jobs, long-term jobs – and not getting weighed down with too much burdensome debt.”

But lawmakers – and economists advising them on Capitol Hill this week – also note that the economy is in uncharted territory and that “calibrating” will be tough.

“We’ve never been here before,” said Robert Reich, labor secretary in the Clinton administration, at a forum of top House Democratic committee chairs on Wednesday.

“We are going to have to approach this in the spirit of experimentation. We have to keep an eye on what works and get rid of what doesn’t work as fast as possible,” he added.

Democratic leaders had hoped to have an economic recovery plan ready for President-elect Barack Obama to sign immediately after his inauguration on Jan. 20.

But given the tough issues to be worked out – and intense interest from committee chairs to have a hand in shaping the outcome – Speaker Pelosi and Senate majority leader Harry Reid now say they expect to get the Economic Recovery Act to the president’s desk no later than mid-February.

The CBO budget estimates fueled new questions about the size and scope of the stimulus package. The report projects that the deficit for Fiscal Year 2009 will total $1.2 trillion, or 8.3 percent of gross domestic product – the largest since 1945. This estimate does not include the further cost of the wars in Iraq and Afghanistan or the economic recovery package on the agenda in Congress.

“We can fairly anticipate with an economic recovery package that the debt of this country will increase by $2 trillion in this year alone,” said Sen. Kent Conrad (D) of North Dakota, who chairs the Senate Budget Committee, at a briefing on Wednesday.

Without policy changes, ongoing deficits will add $1.1 trillion to the national debt every year, he adds. “This is simply a stunning increase in our deficits and debt.”

“While we have to do short-term things to lift the economy, we have to guard against things that will make our long-term situation worse,” he added, at a budget panel hearing on the CBO report on Thursday. Meeting with economists in a daylong session on Wednesday, Senate Republicans began to develop a strategy for assessing the value of new stimulus spending in the face of new deficit estimates.

“To justify any investment from the public sector, you need to demonstrate that the return on that investment will exceed the return if you left the money in the private sector,” said Sen. Jon Kyl (R) of Arizona, the Senate Republican whip, after the meeting.

Republicans want to make sure that the economic recovery plan not include policy elements that increase spending permanently or be loaded up with member pork projects, or earmarks, in the guise of stimulus.

“The spending should not create a political dynamic that makes it hard to stop,” said Harvard economist Martin Feldstein, who met separately with House Democrats and Senate Republicans on Wednesday.

As a fiscal conservative, Mr. Feldstein told the House Democratic forum that he disliked budget deficits and government spending, because they confer burdens on future generations and weaken the economy, but that “it is important to have that fiscal stimulus at this time and to design the tax cuts and the spending changes in the most cost-effective way.”

Overall, Republicans favor tax cuts over new spending as a strategy for economic recovery. They cite the new CBO deficit estimates as Exhibit A for limiting new government spending in the form of stimulus.

“The deficit estimate makes it clearer than ever that we cannot borrow and spend our way back to prosperity when we’re already running an annual deficit of more than 1 trillion dollars,” said House Republican leader John Boehner (R) of Ohio, in a statement

“The reality is that the decisions we make today will impact future generations, and burying our children and grandchildren under a mountain of debt to pay for more wasteful government spending would be the height of irresponsibility,” Representative Boehner said.