The details of President-elect Barack Obama’s proposed economic stimulus package are starting to emerge, and to be frank, I am less than impressed by what I have seen so far. From the New York Times:
“President-elect Barack Obama plans to include about $300 billion in tax cuts for workers and businesses in his economic recovery program, advisers said Sunday, as his team seeks to win over Congressional skeptics worried that he was too focused on government spending.
The legislation Mr. Obama is developing with Congressional Democrats will devote about 40 percent of the cost to tax cuts, including his centerpiece campaign promise to provide credits up to $500 for most workers, costing roughly $150 billion. The package will also include more than $100 billion in tax incentives for businesses to create jobs and invest in equipment or factories.”
I understand the need to fulfill the campaign promise of a middle-class tax cut, and giving businesses incentives for creating jobs, but it seems to me that devoting 40% of the stimulus package to tax cuts is too much.
Here’s a chart from Moody’s that shows “bang for the buck” when it comes to tax cuts vs. government spending. The figures are dollars added to the GDP in relation to dollars spent.
As you can see, the greater boost to the GDP comes from the last four spending increases rather than tax cuts or rebates.
But the thing that bothers me most about the proposed package is the reason for making tax cuts such a large part. From the Wall Street Journal:
“The size of the proposed tax cuts — which would account for about 40% of a stimulus package that could reach $775 billion over two years — is greater than many on both sides of the aisle in Congress had anticipated. It may make it easier to win over Republicans who have stressed that any initiative should rely more heavily on tax cuts rather than spending.”
I respect President-elect Obama’s desire for bi-partisanship, but isn’t it the suddenly fiscally conservative Republicans, whose policies of big tax cuts, un-regulated markets, and laissez-faire capitalism, have put us into the economic ditch in which we now find ourselves?
Also, the President-elect, and virtually every economist worthy of the title has said that our current economic predicament calls for unprecedented, bold actions. I don’t see kowtowing to Republicans as either unprecedented or bold. It reeks of same old, same old to me.
I realize that Democrats passing a stimulus package by a straight party line vote in the House, and by picking off one or two moderate Republicans in the Senate, is a big gamble. If it works, Democrats get all the credit, if it doesn’t they get all the blame.
But to bring it down to simple terms that I can understand, every gym that I have ever walked into in my 52 years has a sign with some variation of the theme, “No guts, no glory.” I think that’s what the majority of us voted for in November, and that’s what we expect, a different way of how business is done in D.C. Isn’t that what “change” is all about?