The stimulus plan unveiled by House Democrats today includes a little something for everyone. With an eye-popping price tag of $825 billion, I suppose it should.
The plan, written in close consultation with the incoming Obama Administration, includes $275 billion in business and individual tax cuts, and $550 billion in direct spending for everything from smart appliances to repairing hiking trails in national parks. A huge chunk—roughly half—would be direct assistance to state and local governments.
There are few surprises among the tax cuts. In his campaign, Obama proposed most of the individual tax breaks-- including his Making Work Pay Credit, and expansions of the Earned Income Tax Credit and the child care credit. The business breaks, including bonus depreciation to encourage investment, a quick cash infusion through the extension of Net Operating Losses, and extending the ability of small business to expense capital equipment, have been on the radar screen for months. The House Democrats dropped a controversial plan to give businesses a new tax incentive to hire workers, although they did expand a tax break aimed at hiring veterans and at-risk youth.
The $825 billion question, of course, is will this provide the advertised Keynesian boost to what is an obviously struggling economy? The less-than-satisfying answer: Some will. An awful lot won’t.
Some relatively good ideas: Temporarily increasing federal assistance to states for Medicaid, education, and public safety. Some of this money will be wasted, for sure, and it would be nice to see the Medicaid money tied to proposals for restructuring this troubled program. But without the cash, states would have to cut spending or raise taxes—counterproductive in a slumping economy.
Some not-so-good ideas: I know we are all green these days, but I’ve got my doubts about $32 billion in energy subsidies. Thirty years ago, the Carter Administration created the Synfuels Corporation that was supposed to wean us off of foreign energy. That didn’t work out so well, and there are troubling echoes of that failed industrial policy in this plan.
Some dogs: Bonus depreciation. We keep trying this, and there is little evidence that it encourages new investment. Tax-exempt bonds for economic development in low-income “recovery zones.” This will move some jobs around, but it is not likely to create many new ones. Six billion dollars for wireless and broadband services in rural and “underserved” areas. I don’t know that wi-fi in places like Aspen ought to be a national priority. Five billion dollars to repair public housing. Why not spend the money to put people in foreclosed homes rather than fix dangerous housing projects?
The problem with many of these ideas is they attempt to do two things at once: create jobs and help the environment, or create jobs and help the long-term poor. This is an ambitious and laudable goal, but I fear that in the real world, it will be tough enough to accomplish just one task. With the amount of debt we are accumulating, it is critical that we spend money on projects that make some sense on their own, and not just throw cash around for its own sake.
