Editore"s Note
Tilting at Windmills

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January 15, 2009

HOUSE STEPS UP WITH STIMULUS PLAN.... Democrats on the Hill began circulating the House version of a proposed stimulus plan this morning. It's an $825 billion package, with $550 billion in new spending and $275 billion in tax cuts.

The package, developed by Congressional Democrats in partnership with President-elect Barack Obama, includes huge increases in federal spending on education, aid to states for Medicaid costs, temporary increases in unemployment benefits and a vast array of public works projects to create jobs. [...]

Some of the largest components include $87 billion for a temporary increase in aid to states for Medicaid costs; $79 billion in aid to local school districts and public colleges to prevent cutbacks; $90 billion in infrastructure spending, and $54 billion to encourage the production of energy from renewable sources. [...]

Under the plan, individuals would receive up to $500 and families up to $1,000 through a cut in payroll taxes on the first $8,100 in income. The money would be delivered through paychecks as a reduction in Social Security withholdings, and is intended to boost consumer spending by giving a small lift to household pocketbooks.

The draft bill is making the rounds and has been posted online, but note that the plan includes $90 billion in infrastructure spending, $79 billion to prevent education cuts at the state and local levels, and $54 billion on energy. Moreover, House Democrats would invest $43 billion in extended jobless benefits and retraining; $39 billion to help the unemployed keep their health coverage; and $20 billion for a temporary increase in food stamps -- which, not incidentally, offers an amazing bang-for-the-buck in terms of stimulus. (The funding for freight rail seems to have been overlooked.)

Speaker Pelosi conceded that the plan from House Democrats is "the first step in the process." Quite right. The package will be referred to committee, while the Senate develops its own plan. The NYT noted that "intense haggling and fierce lobbying are expected over the next few weeks, not just between Democrats and Republicans but between the new administration and Congress, as lawmakers push to pass the stimulus bill by mid-February."

Stay tuned.

Steve Benen 1:15 PM Permalink | Trackbacks | Comments (28)

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Comments

I guess it's just me, but...there's probably something more responsible to do with that money than hand me a tax cut. I'm not rich but $500 isn't going to do all that much, either.
I'd rather see someone stay in their home.

/waits for avalanche of "then give it back!" comments...

Posted by: Cazart on January 15, 2009 at 1:29 PM | PERMALINK

Um, yeah. On the whole payroll tax cut thing --- I would certainly hope that it's means-tested, with a gradual phase-out for incomes between, say, $50,000 and $100,000.

Folks making over $100,000 don't need tax cuts.

Posted by: David Bailey on January 15, 2009 at 1:31 PM | PERMALINK

Cazart - Polls seem to suggest you are in the majority.

I do like the payroll tax change, though I wish they would combine it with an increase in the cap, so that it would have a net zero effect.

Overall, I wish there were something big, specifically designed toward growing production or commerce. Instead, what I see is a lot of debt forgiveness, which won't have much short term effect. And the best part of it, the "shovel ready" stuff, is already the big target of Republicans. This will be portrayed as a truckful of pork. If the Dems don't find a sincere way to justify and market this, it will be a disaster.

Posted by: Danp on January 15, 2009 at 1:45 PM | PERMALINK

I'm with the consensus on the tax cuts: the big crisis here is not necessarily that people need a one-time boost in their paychecks, but that 7.2% of the nation need paychecks in the first place! More jobs, yo. I'd rather they funded the freight rail thing and overlooked the tax cuts rather than the other way around.

Posted by: FreeProton on January 15, 2009 at 1:52 PM | PERMALINK

"...$20 billion for a temporary increase in food stamps -- which, not incidentally, offers an amazing bang-for-the-buck in terms of stimulus."

Exactly. All voters should know why by familiarizing themselves with two economic phrases: "marginal propensity to consume" and "spending multiplier".

Posted by: CJ on January 15, 2009 at 1:59 PM | PERMALINK

"Hear, hear!" on the tax cut comments above.

Any tax cuts should be limited to those who are likely to turn around and spend every penny they save from any such cuts (those at the bottom of the economic ladder), as per my previous post.

Posted by: CJ on January 15, 2009 at 2:02 PM | PERMALINK

folks making $100k in cities where owning a moderate run of the mill 1bedroom apartment costs $12k a year and 1 beer at the bar costs $6 certainly do. $100k is not upperclass in places like DC and NYC.

Posted by: FreeDC on January 15, 2009 at 2:04 PM | PERMALINK

let me clarify (note: i make less then $100k a year). i dont think anyone needs a tax cut. (except they need to fix the mutual fund tax problem that's gonna see a whole lot of middle class people paying taxes on their losses this year)

seems like a pretty weak stimulus.

Posted by: FreeDC on January 15, 2009 at 2:11 PM | PERMALINK

FreeDC, those making $100k with a $12k apartment will be just fine without a tax cut. Seriously, that's not even living paycheck to paycheck.

I get your point that wealth is relative, but we have to begin at the honest assumption that no one making six figures annually is struggling.

Posted by: doubtful on January 15, 2009 at 2:24 PM | PERMALINK

The tax cut comes as a reduction in withholding taxes. Given how most people budget, it's probably a safe bet that most of it will be spent. So, there's your economic stimulus. I would be more concerned about it being used for debt reduction or savings had they issued some sort of a lumpsum payment.

Could the money be better spent? Perhaps, but it's a pretty smart way to deliver on Obama's campaign promise of a middle class tax cut.

Posted by: AK Liberal on January 15, 2009 at 2:27 PM | PERMALINK

Me? I'd take a trillion and spend it on rebuilding infrastructure--bridge, roads, schools, green energy, etc.

Also, help state and local governments to keep teachers, police, etc. on the payroll and please, no tax cuts or tax rebates. (they’re not as simulative as the others and, really, their only purpose is to make rich Republicans happy.)

Sure, we going to be in deficit city. But isn't that what the great John Maynard Keynes said would get us out recession/depression? And with FDR’s help, wasn’t he right? That great/not so great anti-Keynesian, Milton Friedman, has long held sway and his ideas have tattered our economy. Time to move on!

Posted by: Dr Wu, I'm just an ordinary guy on January 15, 2009 at 2:28 PM | PERMALINK

$32 billion for "smart grid?" For a bunch of automated meters to put meter readers out of work. Sounds like utilities got their bite out of the apple.

Posted by: AlphaLiberal on January 15, 2009 at 2:42 PM | PERMALINK

1. the utility industry lobbyists I work with are getting whiplash from the speed this is moving. They won't make the inauguration, but the dems are trying damn hard to.

2. AlphaLiberal, smart grid isn't a joke, it's a way of utilizing the same kind of communications tools that power hand-held devices and the internet to give customers real-time energy cost information. That allows them to actually respond to high prices by lowering consumption, resulting in a better environment. It also allows the industry to "see" the electric grid as millions of points of data instead of hundreds, decreasing the chances of a critical shut down. And no "meter readers" (what decade are you posting from?) will be harmed in the implementation of this valuable environmental/safety technology.

Posted by: Media Browski on January 15, 2009 at 2:46 PM | PERMALINK

Meh. A lot of this looks like it's going to go towards merely replacing money the states would no longer spend on infrastructure and social programs. That's important, of course, but it's not going to do a whole lot to start moving that demand curve out again. It may prevent a total collapse into Great Depression 2.0, but otherwise it's just holding the line at the most. I hope Pelosi's serious when she says that this is just a start.

Oh, and please let's forget this payroll tax cut. If people don't think they'll have any job in three months, they're not going to spend it. Tax cuts can goose an economy that's already going strong, not revive one that's on life support.

Posted by: jonas on January 15, 2009 at 3:31 PM | PERMALINK

I get your point that wealth is relative, but we have to begin at the honest assumption that no one making six figures annually is struggling.

True enough. Those are the people with savings (to lend to the government) or investments (to power the economy) or purchases (more power to the economy.) But where exactly do you think $275B in tax cuts will come from? Earners below the median income level pay Medicare/Medicaid and SS taxes, but not income taxes.

Personally, I am happy to see the investments in new energy production, the grid, and other infrastructure. But I do not see how borrowing from the rich to spend on the poor is a net increase in GDP, or will ever pay back the increased debt. Presidents Kennedy and Reagan famously cut tax rates and increased spending, but the subsequent increase in debt was never paid off -- was it? Even Clinton did not achieve a net paydown on the accumulated debt, though he had budget surpluses in his last years after a modest tax increase and slow growth in federal spending.


Cutting business tax rates would probably help U.S. corporations to compete in the international markets.

Posted by: MatthewRMarler on January 15, 2009 at 3:39 PM | PERMALINK

It's time to roll back some of Bush's tax cuts for the wealthiest. Let the top marginal tax rate go back up to 39%. There's no way the Republicans could say, without lying, that it would ruin the economy. I'll take the 1990s ruin over the tax-cut fueled boom in the 2000s any day.

Tax unearned income the same way earned income is taxed.

And then use those additional revenues to invest more in the economy.

Posted by: OwnedByTwoCats on January 15, 2009 at 4:19 PM | PERMALINK

Yes, by all means, try to assassinate social security by short-changing it! Are the Dems now teaming up with the GOP to murder all social responsibility and safety nets?

Do NOT screw social security. Instead, save it for perpetuity by eliminating the cap on income subject to social security taxation. No more of this criminal nonsense of a person making $150,000 paying the same as a person making $90,000.

Posted by: Praedor Atrebates on January 15, 2009 at 4:28 PM | PERMALINK

I wont be spending the piddly little $40/month (Wooo! BIG bucks) on buying CRAP that keeps our broken economy going. I am going to toss it into my savings account or into purchases of more gold or silver.

What a load of crap this is.

Posted by: Praedor Atrebates on January 15, 2009 at 4:30 PM | PERMALINK

Earners below the median income level pay Medicare/Medicaid and SS taxes, but not income taxes. -MatthewRMarler

Wha? The median income is what, $55,000? So you're saying someone who makes $50,000 a year doesn't pay any income taxes?

Are you high?

Posted by: doubtful on January 15, 2009 at 5:01 PM | PERMALINK

Free money! Whoopee!

Posted by: Luther on January 15, 2009 at 5:18 PM | PERMALINK

doubtful: The median income is what, $55,000? So you're saying someone who makes $50,000 a year doesn't pay any income taxes?

It's more like the bottom 45% of income earners, not the bottom 50% of income earners, who don't pay income tax.

The plan will invest in broadband cable access to "underserved" areas. The authors claim a 10 to 1 return on investment -- but that obviously only applies to the areas where commercial entities have already decided to build the communication links. The reason that the "underserved" areas reamin "underserved" is that financial analysts don't think there will be a competitive return on investing there. It's really more of a "spread the wealth" program than an investment. Or else a "fiber-optic cable to nowhere." Perhaps it will make moving to the country easier for rich people who want to do so.

Is anybody seriously predicting that this extra borrowing will ever be paid back? I am going to use my money to buy treasury bills, so my children can pay their extra taxes out of the interest that is earned.

Posted by: MatthewRMarler on January 15, 2009 at 5:58 PM | PERMALINK
It's more like the bottom 45% of income earners.

IIRC, somewhere in the range of 35-40% of the total "taxable units" -- married couples that file jointly or individuals otherwise -- pay no net income taxes (and they are not exclusively from the bottom end of the income distribution, as some are higher-earners with large deductions.)

The reason that the "underserved" areas reamin "underserved" is that financial analysts don't think there will be a competitive return on investing there.

Right. There is no private incentive to invest, because the people supplying the fiber won't profit. The government isn't looking to make a profit for itself, its looking to realize social benefits in the form of economic stimulus.

There is a difference between benefits that accrue to the person making an investment (which are typically all that matters in private, for-profit investment) and benefits which are realized by others (which are relevant in evaluating the desirability of public investment).

Is anybody seriously predicting that this extra borrowing will ever be paid back?

Yes—you, in the very next sentence:

I am going to use my money to buy treasury bills, so my children can pay their extra taxes out of the interest that is earned.

You know, if the extra borrowing wasn't paid back, your children would have neither principal nor interest to pay their extra taxes from (and if it wasn't paid back, they would still likely have extra taxes, as the default would impose costs on the government, too.)

Of course, in the current environment, when private investment is extremely unattractive, lots of wealthier people are likely to invest any additional available cash in things like T-bills. That's why its smarter, if you are going to use tax cuts at all, to do payroll tax cuts which will inherently be give more of the total cuts to lower-income earners, rather than corporate and personal income tax cuts.

Posted by: cmdicely on January 15, 2009 at 7:43 PM | PERMALINK

Seriously, that tax balance still could be made more progressive - move that 35% rate back to where it was during the last Great Depression, all the way to 50% and make that Repub talking point about people making less than $50,000 not paying taxes the truth rather than hot air.

The truth is that the wealthy corporations and individuals get good accountants and pay historically low taxes and most corporations pay no taxes at all:

http://www.truthout.org/article/most-corporations-dont-pay-income-taxes

Posted by: Glen on January 15, 2009 at 8:16 PM | PERMALINK

Cutting business tax rates would probably help U.S. corporations to compete in the international markets. -- MatthewRMarler, @15:39

What would really, truly, help US corporations (and *all* US employers -- including the smaller ones -- for that matter) compete in the international markets is national (universal) healthcare. We have, sort-a, nationalized at least a part of the pension plans (Social Security) but, given the ballooning prices of healthcare, we'll *never* be able to compete with countries where individual employers do not have to be responsible for providing healthcare insurance for their employees. And that's just about every country we deal with. With employer-provided healthcare insurance we've not only managed to deprive growing numbers of people of access to even basic care, we have hung a ten-ton, rotting albatross on the necks of our businesses.

Posted by: exlibra on January 15, 2009 at 9:05 PM | PERMALINK

um... look the basic fact is that people making $250k) at 42.5% or so but shouldnt raise taxes on those making under $200k.

Posted by: FreeDC on January 15, 2009 at 10:24 PM | PERMALINK

mrm: Is anybody seriously predicting that this extra borrowing will ever be paid back?
...
cmd: Yes—you, in the very next sentence:
mrm: I am going to use my money to buy treasury bills, so my children can pay their extra taxes out of the interest that is earned.
...
cmd: You know, if the extra borrowing wasn't paid back, your children would have neither principal nor interest to pay their extra taxes from (and if it wasn't paid back, they would still likely have extra taxes, as the default would impose costs on the government, too.)

Ah, I ought to have written: Is anyone here seriously predicting that this extra borrowing will be paid off? Of course there will be payments, but I doubt that the principal will ever be fully paid off.

There is a subtle joke about my buying U.S. bonds to support my children. The economy would grow faster, and my children have greater opportunities, if the government paid off its obligations and the money of the future were used by entrepreneurs to fund commercial enterprises. I have basically traded a high-yielding risky asset for a low-yielding reliable asset. It's as bad as saving money, maybe worse than buying gold. In the Japanese depression of the 90s, people who saved enjoyed negative returns as the government borrowed the money to fund construction projects -- on the other hand, they also enjoyed falling prices, so the purchasing power of their savings did not evaporate.

exlibra:What would really, truly, help US corporations (and *all* US employers -- including the smaller ones -- for that matter) compete in the international markets is national (universal) healthcare.

The money to pay for healthcare has to come from somewhere, and where ever it comes from it reduces the power of the people to purchase other stuff (from *all* foreign and domestic employers). The govt could raise income taxes or business taxes, but either way health care has a cost to the economy equal to the cost now paid. The government could try controlling the prices of health care, but price controls always reduce the abundance of the goods whose prices are controlled (and/or create black markets where there are still sufficient supplies.)

Posted by: MatthewRMarler on January 15, 2009 at 10:34 PM | PERMALINK

The government isn't looking to make a profit for itself, its looking to realize social benefits in the form of economic stimulus.

In other words, the borrowed investment cost will never be paid off.

Posted by: MatthewRMarler on January 15, 2009 at 10:37 PM | PERMALINK
It's looking as though the federal deficit will come to under 1% of GDP this year, and may be a surplus by the time the next president is sworn in.

the recession following the Bush-Clinton boom was unusually short and shallow, and the recovery has been modest (compared to the bottom of the slump) by historical standards as well. It's an exciting time. I can hardly wait to find out where America's companies invest all of their record profits.

MatthewRmarler on May 11, 2007 at 10:23 PM | PERMALINK

Yep. I think that pretty much says it all about your skill with applied economics.

Posted by: trex on January 15, 2009 at 11:13 PM | PERMALINK




 

 

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