Tuesday, February 3, 2009

GOP Right Gutting Stimulus to Wreck Obama

Plan Isn't
About 'Recovery'

By Isaiah J. Poole
Campaign for America's Future

The missive [1] that House conservatives issued early Friday may be called an "economic recovery plan," but it is as threadbare as the big discount goods store that went belly-up in my neighborhood a few weeks ago and is now in the final days of bankruptcy liquidation.

They claim they are responding to President Obama's challenge to come forward with the best ideas for economic recovery. But they can't seem to break their tax-cut mantra, even though the evidence is clear that a stimulus plan that relies primarily on tax cuts is no stimulus plan at all in today's economy.

The proposals House Republican leaders have put on the table range from the arguably meritorious—exempting unemployment benefits from federal taxes—to the politically and economically unacceptable—their demand that "any stimulus package include a provision precluding any tax increases now or in the future to pay for this new spending," but instead requiring future spending cuts to offset any new spending.

In the middle is the usual melange of business and personal tax cuts. We've pointed out before [2] that whatever you think of various tax-cut proposals, you can't call them cost-effective stimulus.

The Center for Budget and Policy Priorities reinforced this view in a paper Friday [3], concluding, "There is a serious debate to be had about whether cutting corporate rates, especially if done in tandem with measures to close corporate tax loopholes, would strengthen the economy over the long run. But corporate rate cuts simply are not credible as short-term economic stimulus in a recession."

That's because the core problem businesses face in a recession is not a shortage of cash, but a shortage of demand. It stands to reason, then, that businesses will simply pocket a tax cut, or pass some of the proceeds on to shareholders, until an increase in demand entices them to make the investments needed to meet that demand. (Think about how consumers handled the rebate checks issued last year. Because the lion's share of the checks were used to pay off past debts or to squirrel away something in their savings accounts, "the rebates in 2008 provided little 'bang for the buck' as economic stimulus," according to a new study by University of Michigan economists Matthew D. Shapiro and Joel Slemrod.)

So it makes absolute sense for government to be a demand driver, creating jobs and priming the economic pump by finally addressing the long-neglected public maintenance and rebuilding tasks essential to the country's future.

There is nothing in the plan offered up by House conservative leaders that speaks to how the repair and rebuilding of our public assets will be done in the context of a shrinking government; that task is not even addressed. Instead, they want to head off any thought that the nation would make a permanent commitment to not falling again into the hole of disinvestment in our commons that began to open in the Reagan era and widened under the era of Bush II.

"What seems to be the real message being put forward by House Republicans is that government should hand out additional tax cuts to businesses and then sit on the sidelines," Center for American Progress senior fellow Scott Lilly writes in a column [4] published Friday. "It is time for the loyal opposition to recognize their responsibility for the mess in which we now find ourselves and begin to find ways to be part of the solution rather than prolonging the agony in which millions of jobless Americans and at-risk families are now suffering."

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