It might stimulate the chattering class and rouse his political foes, but President Obama's latest economic proposals won't do much to create jobs or boost incomes any time soon.
Obama knows this.
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With Congress only in session for a few weeks until the midterm elections on November 2, there's virtually no chance that new Democratic stimulus spending will pass, since Republicans can hog-tie the Senate and prevent the Dems a legislative victory they'd be able to tout in the midterms. After that comes a lame-duck Congressional session that could be the Democrats' last hurrah; according to most projections, Republicans are likely to seize control of the House and perhaps even the Senate. So Obama's window for passing major legislation has probably closed.
But Obama is under pressure to show voters some love before election day and address worries about alarmingly high unemployment. So he has prescribed a new regimen of pep pills for the sputtering economy. He wants to spend another $50 billion to repair and upgrade the nation's infrastructure, while enacting some big tax breaks for businesses that could total more than $200 billion. And he's amping up the volume on his plan to extend tax cuts for most Americans but let them expire on higher earners, effectively raising their taxes next year. Message to middle-class voters: He. Cares.
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The shorthand for this plan is "Stimulus II," but it would be more accurate to call it Stimulus IX or Stimulus XII. Over the last few years, Congress has passed nearly a dozen discrete pieces of legislation meant to boost the economy, including two big programs in 2008 under President Bush, the $862 billion spending extravaganza in February 2009, cash for clunkers, two home buyer tax credits, mortgage assistance for troubled homeowners, and several extensions of unemployment insurance. But this is Washington, where anything under $100 billion or so gets rounded down to 0. So that leaves Stimulus II.
Obama's proposals are not bad ideas. Economists generally give them favorable reviews, and Obama has finally included a few GOP morsels in his plan, clearly a political calculation meant to trap Republicans determined to bash every idea he utters. Here's a cheat sheet tallying the pros and cons of Obama's four biggest ideas:
New infrastructure spending. Obama wants to spend $50 billion to rebuild and upgrade thousands of miles of roads, railways, and runways, plus modernize the air-traffic control system to streamline traffic and reduce delays. He also wants to create an "infrastructure bank" that would augment public funds with private investments and help rejuvenate a transportation system that's creaky compared to what's springing up in China, for example.
Economic impact: Measureable. These are worthy projects that would probably add a few tenths of a percentage point to GDP growth and create or preserve thousands of jobs.
Political prospects: Weak. As Obama learned from the 2009 stimulus act, it's very hard to prove convincingly that old-fashioned stimulus spending is a wise use of taxpayer dollars, especially if it adds to the national debt. That's why "stimulus" has become a political epithet. It's even worse if the cost is offset by higher taxes on somebody else, which makes it look like bureaucrats are simply shifting money around.
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Business-spending tax credit. This idea, which was also favored by President Bush, would let companies claim far bigger deductions for spending on new plants and equipment through the end of 2011. The goal is to give companies a reason to spend money now instead of waiting for the economy to recover, whenever that happens. The White House says this could trigger as much as $200 billion in fresh spending, although the ultimate cost to the government would be less, since tax credits would be lower in future years, after the giveback expires.
Economic impact: Significant but temporary. Such a tax break could very well induce companies to invest in trucks, machinery, computers and facilities, since many firms have loads of cash and they'd save money if they were planning to invest it anyway. And a surge of business spending would boost demand for some products, and create jobs. But stronger spending through 2011 would probably be followed by weaker spending after that—the pull-forward effect that clearly occurred with the cash-for-clunkers car rebates and the home-buyer tax credits.
Political prospects: Not this year. Obama has thrown Republicans a curve ball by proposing a tax credit they've long favored. This could be a template for bipartisan stimulus programs next year, if Republicans take over Congress. But it seems just as likely that Congressional Democrats could suddenly get stingy if they lose control of Congress, and obstruct Republican priorities in an act of turnabout.
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A renewed tax break for research and development. This tax break comes and goes, and last expired in 2009. That's a typical problem: Businesses love the R&D tax credit, but can't make permanent plans to take advantage of it since Congress routinely lets it lapse, on account of the cost.
Economic impact: Positive. Economists generally like this policy because it encourages big multinational companies to pursue innovation in the United States instead of elsewhere.
Political prospects: Not this year. In theory, the R&D tax credit enjoys bipartisan support, but Congress has let it expire because of the cost—about $70 billion over 10 years. Democratic proposals to pay for that with other business taxes make it complicated, and harder to gauge any benefit.
Extended tax cuts for most earners. Income tax rates for most Americans are supposed to revert back to prior, higher levels at the end of this year, but Obama wants to extend the cuts for two years or so for most Americans. Tax rates in the top two brackets would go up by a few percentage points, to 39.6 percent at the top and 36 percent right below that.
Economic impact: Questionable. It would probably be foolish to let all the tax cuts expire, raising rates on everybody in the midst of a weak economy. But keeping them where they are won't boost economic activity, it will only sustain it at weak levels. And it will add billions more to the national debt unless the Obama proposes a way to offset the cost. Letting tax rates rise on the wealthy might crimp their spending somewhat, but warnings of dire, trickle-down cutbacks are probably overblown.
Political prospects: Passage of Obama's plan is likely, since Democrats will still control Congress through the end of the year. It might not happen by election day, however, since Republicans can delay action in the Senate to eke out maximum political gain leading up to Nov. 2.
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Had Obama pushed these ideas hard a year ago, or even six months ago, the whole plan might have had a fighting chance—and positioned the Democrats a bit better in the elections. But a year ago Obama's huge fight to pass healthcare reform was just heating up, blocking out most other initiatives. Six months ago Obama and his allies in Congress were ramping up for financial reform, another big battle that sucked the air out of the room. And after that they kicked off the tone-deaf "Recovery Summer" campaign meant to tout the benefits of economic policies that have eluded many of the people they were supposed to help.
The Obamanauts seemed to believe that their earlier stimulus programs would rescue the economy automatically as the money began to flow out of Washington, freeing them to focus on other priorities. Wrong. Republicans and even Tea Partiers probably would have made the same mistake had they been in charge, but they weren't. So now Obama promotes bipartisan ideas that might actually help the economy but have little chance of being enacted or making much of a difference. His best hope might be that somebody else gets stuck with that lousy job.
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Cynthia Ann Mouton of TX 11:09AM September 15, 2010
Steve Nicholson of NV 12:10AM September 14, 2010
JF of HI 7:13PM September 12, 2010