Apples and Oranges
by Charles Lemos, Thu Jan 08, 2009 at 04:52:08 PM EST
The night before last, I could not sleep. My mind was stuck on a phrase uttered by the President-elect based on a report by the Congressional Budget Office (CBO), trillion dollar deficits. Plural. A trillion dollars and more per year for the next few years. I tried to picture just how much money that actually is. How many zeros? Well, I went a million is six, a billion nine, and a trillion thus twelve. A one followed by twelve zeros. Mind-boggling and sleep depriving.
It is some small consolation to hear that members of Congress are today in shock over the CBO projections. At least, we now know that they aren't asleep at the wheel though it is certainly not fair to blame the deficit sins of the past on the current 111th Congress. But now it seems the debate over the size of the fiscal stimulus is taking on new twist in light of the stunning deficit projections. Via the Christian Science Monitor:
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."
Apples and oranges. This deficit is unlike the other deficits brought to you courtesy of the GOP and their free market ideology. This is the deficit of government investment in the economy; this is a planned one, not a Laffer-Friedman supply-side tax cut driven one. Now is not the time to worry about "too much burdensome debt". Now is the time to worry about an economic collapse. When it comes to the American Recovery and Reinvestment Act, the spending component should be massive. Invest in alternative energy, in our cities, in our schools, in mass transit, rebuild our fraying infrastructure, tackle climate change, and inject subsidies into industries that provide jobs so as to stabilize the economy. Through this deficit we are investing in America. The GOP's deficits were little more than a transfer of capital from the nation to the top one percent of Americans.
Here's a broad outline of the plan via the Associated Press:
Details of the economic stimulus plan that President-elect Barack Obama will propose remain sketchy, but in interviews his advisers have indicated that the approximately $775 billion package will be spread over two years, with the biggest chunk -- $300 billion -- reserved for tax cuts. The package is intended to spark more consumer spending and generate about 3.2 million jobs by the first quarter of 2011, the advisers say. Details reported so far:
* The $300 billion in tax cuts includes $500 for most individuals and $1,000 for couples if one spouse is employed, as well as more than $100 billion for businesses, the Associated Press reports.
* Payroll taxes withheld by the government would be cut as well, according to the AP. The break would be retroactive to Jan. 1, and couples receiving the $1,000 tax cut also would keep an extra $80 a month under this provision.
Child Tax Credit
* More than 5 million American children who are poor would be eligible for a $1,000-per-child tax credit for the first time, according to the New York Times. The tax benefit also would be given to millions more poor children who now qualify for only partial credit, The New York Times reported.
* Some $77 billion would be used to extend unemployment benefits and to subsidize health care for people who have lost their jobs, according to the AP.
Jumpstart on Jobs
* A substantial amount of money would be devoted to job-creation projects such as roads and bridges and toward long-term goals such as alternative energy programs.
* For businesses, the plan would allow firms that incurred losses last year to take a credit against profits dating back five years instead of the two years currently allowed, the AP reported. One proposal under consideration would give businesses a $500-per-worker break on payroll taxes, according to the Times.
* The stimulus plan won't include money for politicians' pet projects and will include provisions to ensure transparency and accountability to taxpayers and Congress, Obama officials told the AP. An oversight board would be created to meet publicly and issue reports to Congress on how the money is being spent. A user-friendly Internet site also would allow people to track the flow of funds, the officials said.
If Congress must find its religion on something, then let that be on tax cuts or to be precise, no tax cuts for it is a bullet than ceased to work. Let's hope that this package focuses more on actual government spending rather than relying on tax cuts to provide a lift to the economy. Via the New York Times:
But in a sign that Mr. Obama's proposals are likely to face serious challenges, even some Democrats on Thursday criticized parts of his plan. Senator Kent Conrad of North Dakota, who is chairman of the the Budget Committee, said he doubted that a $140 billion proposal to stimulate the economy by withholding less from workers' paychecks -- $500 each for individuals, $1,000 for families -- would prove much more effective than the rebate checks sent last year, Bloomberg News reported. Senator Ron Wyden, a Democrat from Oregon who is a member of the Finance Committee, shared Mr. Conrad's concerns. "In tough times people don't respond all that well to marginal changes," Bloomberg News quoted Mr. Wyden as saying.
It almost seems that Obama is holding out the carrot of tax cuts in order to get the GOP on board with his economic plan. If so, that's not just bad politics, it's bad economics. And we can't afford either one of those.