Sunday, February 08, 2009

Obama, Republicans and The Stimulus Bill

What have we had from Washington?
  • House Republicans refuse to vote for the House Bill and majority of Senate Republicans stay away from the Senate's Bill.
  • Both set of Republicans seem to complain that they were shut out of the negotiations, that their ideas were ignored, but fail to mention that the vast majority of their ideas were retreads from the Bush Administration.
  • Obama still seeks bipartisan support for the plan.
Have we got a President who is too concerned with bipartisanship? Mr. Obama wrote the following as part of his editorial for The Washington Post, The Action Americans Need:
"This plan is more than a prescription for short-term spending -- it's a strategy for America's long-term growth and opportunity in areas such as renewable energy, health care and education. And it's a strategy that will be implemented with unprecedented transparency and accountability, so Americans know where their tax dollars are going and how they are being spent.

In recent days, there have been misguided criticisms of this plan that echo the failed theories that helped lead us into this crisis -- the notion that tax cuts alone will solve all our problems; that we can meet our enormous tests with half-steps and piecemeal measures; that we can ignore fundamental challenges such as energy independence and the high cost of health care and still expect our economy and our country to thrive."

The Post's editorial writers then wrote The President Should Heed Calls for a More Focused Stimulus:
"However, ideology is not the only reason that senators -- from both parties -- are balking at the president's plan. As it emerged from the House, it suffered from a confusion of objectives. Mr. Obama praised the package yesterday as 'not merely a prescription for short-term spending' but a 'strategy for long-term economic growth in areas like renewable energy and health care and education.' This is precisely the problem. As credible experts, including some Democrats, have pointed out, much of this 'long-term' spending either won't stimulate the economy now, is of questionable merit, or both. Even potentially meritorious items, such as $2.1 billion for Head Start, or billions more to computerize medical records, do not belong in legislation whose reason for being is to give U.S. economic growth a 'jolt,' as Mr. Obama himself has put it. All other policy priorities should pass through the normal budget process, which involves hearings, debate and -- crucially -- competition with other programs."

Sen. Susan Collins of Maine is one of the moderate Republicans whose support the president must win if he is to garner the 60 Senate votes needed to pass a stimulus package. She and Democrat Ben Nelson of Nebraska are working on a plan that would carry a lower nominal price tag than the current bill -- perhaps $200 billion lower -- but which would focus on aid to states, "shovel-ready" infrastructure projects, food stamp increases and other items calculated to boost business and consumer spending quickly. On the revenue side, she would keep Mr. Obama's priorities, including a $500-per-worker tax rebate.

To his credit, Mr. Obama continues to seek bipartisan input, and he met individually with Ms. Collins for a half hour yesterday afternoon. We hope he gives her ideas serious consideration.

While Republicans want to keep tax cuts for the rich but not for the working class, Martin Feldstein wrote The Current Stimulus Plan: An $800 Billion Mistake:

"As a conservative economist, I might be expected to oppose a stimulus plan. In fact, on this page in October, I declared my support for a stimulus. But the fiscal package now before Congress needs to be thoroughly revised. In its current form, it does too little to raise national spending and employment. It would be better for the Senate to delay legislation for a month, or even two, if that's what it takes to produce a much better bill. We cannot afford an $800 billion mistake"

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Instead, the tax changes should focus on providing incentives to households and businesses to increase current spending. Why not a temporary refundable tax credit to households that purchase cars or other major consumer durables, analogous to the investment tax credit for businesses? Or a temporary tax credit for home improvements? In that way, the same total tax reduction could produce much more spending and employment.

Postponing the scheduled increase in the tax on dividends and capital gains would raise share prices, leading to increased consumer spending and, by lowering the cost of capital, more business investment.

On the spending side, the stimulus package is full of well-intended items that, unfortunately, are not likely to do much for employment. Computerizing the medical records of every American over the next five years is desirable, but it is not a cost-effective way to create jobs. Has anyone gone through the (long) list of proposed appropriations and asked how many jobs each would create per dollar of increased national debt?

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If rapid spending on things that need to be done is a criterion of choice, the plan should include higher defense outlays, including replacing and repairing supplies and equipment, needed after five years of fighting. The military can increase its level of procurement very rapidly. Yet the proposed spending plan includes less than $5 billion for defense, only about one-half of 1 percent of the total package.

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All new spending and tax changes should have explicit time limits that prevent ever-increasing additions to the national debt. Similarly, spending programs should not create political dynamics that will make them hard to end.

The problem with the current stimulus plan is not that it is too big but that it delivers too little extra employment and income for such a large fiscal deficit. It is worth taking the time to get it right.

The Senate passed a plan priced at $870 billion. Now off to conference committee. With Obama expected to campaign more forcefully for the plan in the next week.

E.J. Dionne thinks the President is losing the political/public relations battle over the stimulus. Rescue for the Stimulus:

"They have done so largely by focusing on minor bits of the stimulus that amount, as Obama said in at least two of his network interviews, to 'less than 1 percent of the overall package.' But Republicans have succeeded in defining the proposal by its least significant parts.
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Daschle's withdrawal as the nominee for secretary of health and human services poses a long-term challenge to the administration's ambitious health-care plans because the former Senate majority leader was so crucial to the White House's strategy. But the battering that the stimulus has taken is an immediate problem.

Although Obama aides dismiss the media coverage as 'cable chatter' important only inside the 'Washington echo chamber,' they acknowledge that Congress does its work inside that noisy hall and that the journalistic back-and-forth has tainted its key legislative objective. 'We didn't give it as much air cover last week as we should' have, said one top adviser. 'We lost a week.'"

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For most of the debate, Obama has cast himself as a benevolent referee overseeing a sprawling and untidy legislative process to which he would eventually bring order. He urged Democrats to knock out small spending measures that had caused public relations problems while doing little to defend the overall package or to reply to its Republican critics.

In the meantime, those critics have been relentless, often casting logic aside to reframe the debate from a practical concern over how to rescue the economy to an ideological dispute about government spending.

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And Republicans who in one breath say they want more tax cuts declare in the next that they are against the tax cuts Obama has proposed.

Sen. Jon Kyl of Arizona said of Obama's $500 refundable tax credit: "Calling a rebate to people who don't pay income taxes a tax cut doesn't make it a tax cut." Presumably Kyl doesn't consider as taxes the payroll taxes (or, for that matter, sales taxes) paid disproportionately by low- and middle-income Americans.

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Its hopes rest in part on a different form of bipartisanship. If Washington Republicans have decided to build a wall of opposition to the stimulus, Republican governors and mayors are eager for the money Obama wants to give them.

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Thus will Obama and his allies be touting strong support for the stimulus from the Republican governors of California, Connecticut, Florida and Vermont. Mayors will be called upon to move House Republicans still open to persuasion.

Do not forget Indiana's Republican Governor's desire to spend the stimulus money, this from Nuvo Newsweekly's Statehouse update:

"Daniels said Indiana would get between $4 billion and $5 billion under the federal stimulus package the U.S. House passed Tuesday. That package gives the governor authority to decide how to spend much of those billions."


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But with unemployment rising rapidly, Daniels said it's critical the state be ready to spend stimulus dollars to create jobs as soon as it reaches the state's bank account. Daniels named roadway construction, clean water projects and weatherization as programs he'd direct stimulus money toward. 


According to the governor, the Indiana Department of Transportation is nailing down a list of already-planned projects, and will begin accepting bids on some of those projects as early as Monday. 


Paul Krugman wrote something similar to Dionne in his New York Times' column's On the Edge:

"So what should Mr. Obama do? Count me among those who think that the president made a big mistake in his initial approach, that his attempts to transcend partisanship ended up empowering politicians who take their marching orders from Rush Limbaugh. What matters now, however, is what he does next.

It’s time for Mr. Obama to go on the offensive. Above all, he must not shy away from pointing out that those who stand in the way of his plan, in the name of a discredited economic philosophy, are putting the nation’s future at risk. The American economy is on the edge of catastrophe, and much of the Republican Party is trying to push it over that edge."

As much as I respect Mr. Dionne's writing, I wonder if once again smarter people are missing the point of Obama? He plays his own game. He has the willfulness to impose his ideas and the mobility to move those ideas forward. Perhaps he sees a need to separate critics from mere obstructionists. Perhaps he sees the long term goal is of mitigating his critics and quarantining the obstructionists. Perhaps he sees that by highlighting the obstructionists, he can undercut the Republicans political support in next year's midterm elections? And maybe he has goofed? Who wants to bet?

With all that is going on with an incoming Administration, with all the messes left on the carpet by the departing Bush, could it be that our President knows the places and the points to put the pressure. Now we have seen what the Republicans offer us (nothing much, still denying reality), a President who appears not only reasonable but statesmanlike, and let us judge the plan by what is done between now and the time the bill reaches Obama's desk.





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