COP: Overstimulating Spending

NRO
By the Editors

A new Congressional Budget Office report on the economic stimulus package has added a measure of clarity to the debate. We now have a much better idea of what President Obama and the Democrats mean by “stimulus.” They do not mean those policies that will provide the greatest boost to economic activity. They mean those policies that will stimulate the economy within the narrow bounds of what partisanship and ideology will allow, plus some policies that are wholly unrelated to economic stimulus. The most notable evidence for this is the CBO finding that that less than 40 percent of the discretionary spending in the stimulus bill would be used in the first 18 months. Obama’s aides once stressed the importance of spending the bulk of the money before 2011. Now David Axelrod, his chief adviser, tells us to take a longer view. A spokesman for Speaker Pelosi encourages us to see the post-recession expenditures as “down payments on crucial priorities for our economic future.” The question arises: Crucial priorities according to whom?

Consider the $18.5 billion proposed for renewable-energy projects, less than $3 billion of which would be spent by 2011. Even if we conceded, for argument’s sake, that the initial $3 billion would boost the economy in the short run by putting people to work and increasing demand for things like steel and concrete, why should we agree to spend the additional $15.5 billion when we do not share the green lobby’s passion for such projects? Clearly, the extra money is being ramrodded through Congress in the guise of “economic stimulus,” though it is actually the opposite of that.

Or consider the $30 billion proposed for highway spending, less than $4 billion of which would be spent by 2011. Again, accepting the questionable premise that the first $4 billion is necessary for economic recovery, why pile on $26 billion needlessly? The last highway bill, passed in 2005, topped $280 billion and contained so many pork projects that some of them became synonymous with government waste (cf. Bridge to Nowhere, embarrassing saga of). If the nation’s infrastructure is “crumbling,” as we hear so often, one reason is because lawmakers have mis-prioritized, not because they have spent too little. The proper place to remedy this problem is in the next highway bill, which Congress is scheduled to draft this year.

Perhaps most egregious is the $80 billion “State Fiscal Stabilization Fund,” intended to bail out those states that promised more in Medicaid and other welfare benefits than they had revenue to pay for. Just over $30 billion of the money would be spent by 2011. The rest is reserved for the years 2011 and 2012, with allocations stretching into the year 2019. This is not a stimulus plan. It is an invitation to states to engage in politically popular but unaffordable overspending for years to come.

The stimulus package’s tax-relief provisions, on the other hand, are designed to take effect right away, and have a decent shot at boosting the economy. But party allegiances and ideology have prevented the Democrats from considering better, more effective tax cuts. The Republican Study Committee has put together a superb tax-relief proposal, and all of its ideas should be under consideration. For instance, gradually cutting the corporate tax rate from 35 percent to 28 percent over the next five years (which is slightly less ambitious than what the RSC has proposed) would mean an estimated $230 billion in forgone revenue—about $100 billion less than the quinquennial cost of Obama’s “Making Work Pay” tax credit ($500 for every worker, phasing out at incomes above $75,000).

A corporate tax cut would flow through to workers in the form of higher wages, consumers in the form of lower prices, and investors in the form of greater profits. It would stimulate economic activity across a broad spectrum. The “Making Work Pay” tax credit would flow only to low-to-middle-income workers and seems narrowly designed to stimulate consumption, not investment. It is clear which of these is more desirable from an economic standpoint, but the redistributive aspects of the latter make it the only option the Democrats are willing to consider.

In response to these findings in the CBO report, Democrats have vowed to speed up the spending by fiddling with deadlines and pressuring states to disburse the money faster. This just seems like a recipe for waste and corruption. But Axelrod brushed aside concerns, saying, “We should have a discussion and a debate, but we ought to move with all deliberate speed here because we do have a national emergency when it comes to the economy and that will be our first order of business.”

Got that? The top priority of the man who represents “hope over fear” will be an attempt to spook the public into supporting a liberal wish list disguised as a stimulus bill.

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