Wednesday, February 11, 2009

Stimulus plan put into perspective

by Gene Lyons

Maybe the best way to get some perspective on President Obama's $800 billion economic stimulus plan is to compare it with a couple of his predecessor's noteworthy adventures in the art of governance.

Faced with a mild recession in 2001, George W. Bush contended that "a warning light is flashing on the dashboard of our economy, and we just can't drive on and hope for the best. We need tax relief now." His answer was a $1.35 trillion tax cut targeted largely at the wealthy, i.e.. more than 50 percent larger than the Obama initiative.

Enacted with numerous Democratic votes, the Bush tax cuts were supposed to invigorate a sluggish economy. Eight years later, with the aid of a chart prepared by thinkprogress.org, the results are clear. Unemployment has grown from 4 to 7.6 percent and continues to increase frighteningly fast. The economy lost 3.6 million jobs last year, and 600,000 in January alone. The number of persons living in poverty has risen from 12.7 to 17 percent. In 2001, 17 million Americans relied on food stamps; today, 30 million do.

Contrary to GOP dogma, Bush's tax cuts also failed to pay for themselves. As Obama pointed out during his Feb. 9 news conference, the national debt doubled on his predecessor's watch. The Iraq war alone cost several times more than Obama's stimulus plan. Republicans like Sen. John McCain who voted to spend billions rebuilding Iraqi roads, schools and power plants now call it "criminal" to rebuild them here at home.

GOP politicians stood quietly by when Bush's Coalition Provisional Authority air-lifted $12 billion in cash, 363 tons of crisp, shrink-wrapped $100 bills, to Iraq. Then reportedly couldn't account for almost $9 billion of it. As in, the money vanished. Permanently. Odd how quiet the allegedly liberal media's been about it, don't you think? Imagine the uproar had a Democratic administration done that.

The point is the dashboard light is not blinking anymore. The U.S. economy's broken down at the side of the road with black smoke pouring out from under the hood. Fire extinguisher? Completely unnecessary, Republicans chant. Why, Rush Limbaugh says if we'd just cut taxes again, Americans could afford to rotate the tires. The fire will die out eventually. Anything else would be socialism!

Enter the "centrists," consisting of three Republican senators from the northeast who fear that siding with the GOP's Confederate wing would result in their becoming former senators, and several red-state Democrats whose constituents remain in thrall to what used to be called Reaganomics, although the patron saint of contemporary conservatives was far more pragmatic than the second President Bush. Yes, Ronald Reagan cut income taxes; he also nearly doubled Social Security and Medicare taxes.

That's why it's nonsense to object because workers who pay little or no income tax get tax credits under the Obama plan. According to Bloomberg News, "The average tax rate paid by the richest 400 Americans fell by a third to 17.2 percent through the first six years of the Bush administration and their average income doubled to $263.3 million, new IRS data show." Meanwhile, payroll taxes paid by minimum-wage employees are almost 16 percent.

Any questions?

Together, the centrists slashed billions from the stimulus in a ham-fisted fashion. Several cuts strike most economists as shortsighted. Broadly speaking, the more cash Obama's plan puts into the hands of people certain to spend it, the more stimulus it provides the broader economy.

Mark Zandi at Moody's economy.com, a former adviser to McCain's presidential campaign, has produced a chart estimating how much bang for the buck the stimulus provides: Every dollar spent on unemployment benefits should generate $1.64 increase in Gross Domestic Product, a dollar on food stamps $1.73, etc. Least effective are income tax cuts for people who won't spend it.

States whose constitutions forbid deficit spending need money for unemployment benefits and increased Medicaid costs, and to pay the salaries of state employees who administer the programs. It's not alarmist to warn of laid off teachers, firefighters and cops in hard-hit states such as Ohio, California and Florida. It's already happening. That's why Republican governors such as Florida's Charlie Crist and California's Arnold Schwarzenegger have sided with Obama. Unlike GOP senators and representatives performing Washington political theater, governors have payrolls to meet.

Cutting $20 billion for school construction and another $8 billion to make federal government buildings energyefficient also makes no sense whatsoever. We're talking about a million jobs in the construction trades, not to mention better education and cost-saving energy efficiency.

But hey, it's definitely bipartisanship, and Obama asked for it, didn't he? Moreover, this is exactly how the American system was designed to work. And any way you look at it, passing the stimulus bill is a huge accomplishment for a president during his first month in office.

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