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A Love–Hate Situation For The Stimulus Bill

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February 2, 2009

As the Senate focuses its attention on the economic stimulus bill, Republicans are putting up a good fight, after the measure sailed through the House of Representatives, despite unanimous Republican opposition.  Time magazine reports that Republican Senator Mitch McConnell believes that the bill will fail in the Senate because it does not provide enough tax cuts.  The Republican insistence on tax cuts has already been addressed by President Obama, who included more tax cuts into the measure.  In an editorial for Bloomberg News, Michael R. Sesit complained:

Obama’s proposed cuts are politically motivated — a bone thrown to Republicans, who embrace lower taxes.  The president’s desire to promote bipartisanship is a laudable goal.  Yet pursuing it at the expense of sound economic policy is a high price to pay.  Obama has enormous public support and doesn’t need Republican cooperation to pass his stimulus program.

Tax cuts are also politically hard to reverse, which will eventually be necessary once the economy is back on its feet and inflation picks up.

The Time article quoted Massachusetts Representative Barney Frank’s response to the cry for even more tax cuts:

“I never saw a tax cut fix a bridge. I never saw a tax cut give us more public transportation.  The fact is, we need a mix,” Frank said.

In his January 29 op-ed column for the New York Times, David Brooks reflected on what Larry Summers (the newly-appointed head of the National Economic Council) had to say throughout 2008 about the nature of a large-scale stimulus package, such as the one under consideration.  Brooks noted “three clear guidelines” established by Summers for developing a plan such as this:

First, the stimulus should be timely.  The money should go out “almost immediately.”  Second, it should be targeted.  It should help low- and middle-income people.  Third, it should be temporary.  Stimulus measures should not raise the deficits “beyond a short horizon of a year or at most two.”

In criticizing this bill, Brooks argued that these parameters have been abandoned.  Among his suggested “fixes” would be the removal of the permanent programs built into the proposal.

Meanwhile, E. J. Dionne has written about how progressive Democrats are split into two camps, expressing different priorities for the measure:

One camp favors using the stimulus to focus on the needs of Americans of modest means.  The $819 billion stimulus bill that passed the House Wednesday night on a party-line vote, as well as the proposal being developed in the Senate, includes substantial new spending for the unemployed, for food stamps and for advances in health-care coverage.  The tax cuts in both versions tilt toward Americans with lower incomes.  Education programs also fare well.

But another group of progressives sees the bills as shorting investments for infrastructure:  roads, bridges and particularly mass transit.  This camp was buoyed by a report released Wednesday by the American Society of Civil Engineers concluding that it would take $2.2 trillion to bring the nation’s infrastructure into good repair.

Many sources, including the San Francisco Chronicle, have criticized this bill as being laden with “pork” projects, unlikely to spur economic growth or to create jobs.  Beyond that, Jeanne Cummings provided an interesting report on the Politico website, revealing how the business sector sees this “oversized legislation” as a “golden opportunity”.  The Democrats do not seem averse to this interest:

Senate Democrats, hoping to draw more bipartisan support, have already signaled they’re going to beef up the business provisions.  Versions of some of the most coveted tax breaks are already in the proposal by Senate Finance Committee Chairman Max Baucus (D-Mont.).

But business leaders and their trade representatives would like to see even more love in the stimulus.  And they’ve commissioned special studies, blanketed the committee with letters and recruited industry bigwigs to make their case.

In the face of this expanding government largesse, an editorial in Sunday’s Washington Post called upon President Obama to remind those in Congress “including leaders of his own party, who are cluttering his fiscal stimulus plan with extraneous and counterproductive provisions” of the admonition he gave to the bad actors on Wall Street.  In his disgust with the misappropriation of over $18 billion in TARP money for bonuses, the President said:  “show some restraint and show some discipline and show some sense of responsibility.”  In a passage reminiscent of David Brooks’ emphasis on the “three clear guidelines” established by Larry Summers, the Washington Post editorial noted that:

Instead of giving the economy a “targeted, timely and temporary” injection, the plan has been larded with spending on existing social programs or hastily designed new ones, much of it permanent or probably permanent — and not enough of it likely to create new jobs.

Former Clinton administration budget director Alice Rivlin fears that “money will be wasted because the investment elements were not carefully crafted.”  Former Reagan administration economist Martin Feldstein writes that “it delivers too little extra employment and income for such a large fiscal deficit.”  Columbia University’s Jeffrey D. Sachs labels the plan “an astounding mishmash of tax cuts, public investments, transfer payments and special treats for insiders.”

Let’s face it:  the Republicans aren’t the only ones who are upset about the excesses in this stimulus plan.  In fact, most Republican governors favor this bill.  Last week the National Governors Association called on Congress to pass the plan.  Beth Fouhy reported for the Associated Press that Florida Governor Charlie Crist and Vermont Governor Jim Douglas are pushing Republican Senators to pass the bill.  Although such a measure may be distasteful to Republican ideals, these hard times demand that Republican governors follow the procedure described by Rush Limbaugh as “bending over and grabbing your ankles”:

Minnesota Gov. Tim Pawlenty, who is widely viewed as a potential presidential contender in 2012, said governors have little choice but to accept the relief being offered.  “States have to balance their budgets,” he said.  “So if we’re going to go down this path, we are entitled to ask for our share of the money.”

As the stimulus bill makes its way through the Senate, it will be interesting to see whether the final version involves dispersal of more than or less than $826 billion.  Don’t be surprised if it hits the One Trillion mark.