A slew of new initiatives aimed at jumpstarting economic growth are being announced this week. The proposals include $50 billion in infrastructure spending, extending the tax credit for research and development, and a capital investment tax write-off.
Some in Washington are adamant that these new measures aren’t just another round of stimulus. We decided to take a closer look. Are these proposals a fresh approach or are they just more stimulus spending?
Click here to see our new Fiscal Cheat Sheet and decide for yourself.
A new economic “stimulus” proposal floating around Washington in the days before Congress returns is not sitting well with many. Here’s a brief roundup of today’s reactions:
According to USA Today, Moody’s Analytics chief economist Mark Zandi, who has advised both House Speaker Nancy Pelosi (D-CA) and former presidential candidate Sen. John McCain (R-AZ) said the $180 billion package of tax cuts and infrastructure spending will not “add up to a lot of new jobs.”
Ken Camp, CEO of Hillenbrand, Inc., told The Wall Street Journal a tax break included in the plan to spur business investment “wouldn’t persuade him to increase investment at the company…” The problem, it seems, is the temporary nature of most of the proposals. Terex Corp. Ron DeFeo, said the tax incentives won’t “change fundamental demand” and actually could lead to more instability in the economy.
One manufacturer said the tax portion of the bill may help a little, but he’s much more concerned with the looming tax increases he’ll face when the 2001 and 2003 tax cuts expire. Brad Benson, president of Squires-Belt Material Co., told the Los Angeles Times while he welcomes the proposal “as a manufacturer, [he’s] more concerned with the tax-cut issue.”
As Washington begins to re-float the idea of another “stimulus,” USA Todayadvises: “Don’t just stand there – do nothing.”
As the economic recovery falters, pressure is mounting on policymakers to do something —anything — to boost growth, preferably before Election Day.
In response to this clamor for another short-term stimulus, here’s one piece of advice: Don’t just stand there — do nothing. More government borrowing and spending would accomplish little but provide lawmakers yet another rationale for delaying the day of reckoning.
But for now, with depression off the table and about 30% of the $814 billion stimulus still in the pipeline, it’s time for government to start following the lead of its people and businesses. Instead of passing a minor stimulus that would be almost meaningless in the context of global economic trends, Washington should focus on the big picture. The national debt stands at $13.4 trillion, or $104,000 for every U.S. household. And even that is just a prelude to the horrific numbers projected over the next two decades as the result of surging expenditures on health care and retirement.
Acting to slow the growth in benefit programs such as Social Security and Medicare would not only forestall economic Armageddon down the road, it also might actually be the best thing for the economy now. It would restore confidence among investors that the nation is not heading for a major credit crisis or a period of hyperinflation.
According to Rasmussen, 47% of likely voters say they are more worried government will do “too much” in reacting to the nation’s economic problems; 44% are more worried government will do too little.
According to Ipsos/Reuters, 49% off Americans would prefer to extend all the 2001 and 2003 tax cuts; 31% would only extend the tax cuts for people earning less than $200,000; and 15% would allow all of the tax cuts to expire.
According to Rasmussen, 38% of likely voters say last year’s stimulus helped the economy. 36% now say it hurt the economy. 21% say it had no impact.
There is little doubt Americans are feeling anxious and uncertain about the U.S. economy. According to a CBS poll, 83% of Americans think the economy is in “bad” shape; 37% even say it’s in permanent decline. Economists are uneasy as well. As we pointed out last week, GDP growth for the second quarter of 2010 was just revised down to a dismal 1.6%.
So begins a new push for a second stimulus. Laura Tyson, a professor at University of California-Berkeley’s business school, advocates for one in The New York Timestoday. Tyson argues the first stimulus worked well, but because it’ll run out soon, Congress must pass another. She then lays out a laundry list of spending initiatives Congress should pass.
Tyson believes the nation’s debate about economic policy has focused too much on reducing the deficit and too little on reducing unemployment.
As we’ve noted before, Harvard economist Robert Barro has explained why government “stimulus” spending is a bad deal for American taxpayers and is not an effective means for creating jobs. In February he explained, “[V]iewed over five years, the fiscal stimulus package is a way to get an extra $600 billion of public spending at the cost of $900 billion in private expenditure.” In other words, the federal government was trading $9 for $6 dollars. A month earlier he suggested Congress concentrate more on “incentives for people and businesses to invest, produce and work. … [W]e should not be considering massive public-works programs that do not pass muster from the perspective of cost-benefit analysis.”
Economists in a new survey by the National Association for Business Economics (NABE) seem to agree more with Barro than Tyson. Those surveyed do not think a second stimulus would help growth. 58% are against allocating more federal money. NABE President Lynn Reaser sums up the survey: “The near-term focus should be the promotion of economic growth…Respondents also do not believe another stimulus package is necessary but think the various tax cuts should be extended beyond their scheduled expiration at year-end.”
The BA team breezed through the big 8-28 rallies in Washington, DC to test the government spending IQ of participants. We gave them five spending facts and asked whether they were implemented by Bush or Obama. The answers may surprise you.
1
Bush or Obama? This president spent a record-breaking $3 trillion in a single year.
Answer: Both. In 2008, Bush was the first president to spend $3 trillion in a single year. According to
White House estimates, Obama will spend $3.6 trillion in 2010 and $3.8 trillion in 2011.
Bush or Obama? This president bailed out hundreds of large banks and corporations.
Answer: Both. Obama carried out Bush’s unpopular $700 billion bailout for failing corporations.
Together, the presidents have bailed out over 600 businesses since Spring 2008.
Bush or Obama? This president spent billions of taxpayer dollars on “stimulus” spending
during a recession.
Answer: Both. In 2008, Bush spent over $100 billion on rebates to stimulate consumer spending -
his second attempt at using spending as stimulus. In 2009, Obama enacted a $814 billion
stimulus package.
Bush or Obama? This President increased spending by many times the rate of inflation across
most non-defense categories – such as education, Medicare, Medicaid, income security and
regional development.
Answer: Both. Contrary to popular belief, defense and homeland security spending only made up
about 40 percent of Bush’s new spending. He increased spending across most non-defense categories
by four to six times the rate of inflation. In Obama’s first half year in office, many of these budgets rose
another 70 percent.
Bush or Obama? This president passed an expensive healthcare bill.
Answer: Both. In 2003, George Bush signed into law Medicare Part D, which cost hundreds of billions
of dollars. As you probably know, President Obama also enacted an expensive healthcare package
earlier this year (though cost estimates vary considerably).
In preparation for Vice President Biden’s visit today to Manchester, New Hampshire to discuss the American Recovery and Reinvestment Act (aka the “stimulus”) and “mark a Recovery Act milestone,” below are some facts to consider:
New Hampshire’s share of the $862-billion “stimulus” bill received: $395,322,052
This is 0.5% of the $85.7 billion that has been received by states. (Last updated: 8/24/2010)
New Hampshire’s unemployment rate was 5.5% when the “stimulus” was enacted in February 2009; for July 2010, the rate was 5.8%.
New Hampshire’s 5.8% unemployment rate is lower than the national average of 9.5%.
New Hampshire lost 5,400 jobs between February 2009 when the “stimulus” was enacted and July 2010.
For FY2011, New Hampshire is on track to overspend by $365 million. (Last updated: 7/15/2010)
New Hampshire’s number of foreclosed homes was 739 when the “stimulus” was enacted; that number has since grown to 835.
Example of “stimulus” spending:
$145,000 of federal stimulus funds were used to buy iPod Touch’s for sixth graders at Somersworth Middle School in New Hampshire. Superintendent Karen Soule said the devices are important to district’s mission of making students more “technology literate.”
Here’s a look at some of this week’s most interesting, and consequential, budget- and economy-related issues in the 50 states:
The Las Vegas Review Journal reports that according to a Las Vegas business consultant, the effects of Nevada’s share of stimulus money are “too little, too late.”
The Pittsburgh Post Gazette reveals that Pennsylvania Governor Ed Rendell has started to implement cuts to close the state’s $282 million budget deficit.
According to the Richmond Times Dispatch, the Virginia budget surplus has grown to about $400 million after further analysis.
In an editorial, the Pittsburgh Post Gazette writes that Pennsylvania lawmakers received $67,000 worth of perks last year. This, however, does not even include “$18,000 in food and rental facilities for events hosted by lawmakers for constituents. And it doesn’t include tangible gifts of less than $250.”
The Associated Press reports that the Bell, CA compensation controversy continues. The city council voted Tuesday to lower property taxes “after a state audit showed it overcharged residents to cover pension costs for exorbitantly paid staffers.”
Ants: small creatures that usually go unnoticed unless they make their way into your kitchen or picnic basket. But why would Congress spend $1 million worth of your ‘emergency economic stimulus’ to fund studies of the pesky little things?
Half a million dollars went to Arizona State University to study the genetic makeup of ants to determine distinctive roles in ant colonies $450,000 went to the University of Arizona to study the division of labor in ant colonies.
The immense wasteful spending highlighted in Senator Coburn’s and Senator McCain’s “Summertime Blues” report even made the author think twice about spending:
“I had no idea that so much expertise concerning ants resided in the major universities of my state,” said McCain. “I say that with an element of pride, but I’m not sure it’s deserving of these taxpayers’ dollars.”
Washington promised the stimulus would improve economic conditions and create jobs. The study of ants, whether it’s genetic makeup or division of ant colonies, will not stimulate the economy. This is just another egregious example of Washington’s irresponsible waste at a time when America can least afford it.
In preparation for President Obama’s visit today to Seattle, Washington to discuss the American Recovery and Reinvestment Act (aka the “stimulus”) and Washington’s plan for the road ahead, below are some facts to consider:
Washington’s share of the $862-billion “stimulus” bill received: $2,686,849,584
This is 3.1% of the $85.7 billion that has been received by states. (Last updated: 8/10/2010)
Washington’s unemployment rate was 8.1% when the “stimulus” was enacted in February 2009; today it is 8.9%.
Washington’s 8.9% unemployment rate is lower than the national average of 9.5%.
Washington lost 68,600 jobs between February 2009 when the “stimulus” was enacted and June 2010.
For FY2011, Washington is on track to overspend by $2.1 billion. (Last updated: 7/15/2010)
Washington’s number of foreclosed homes was 3,076 when the “stimulus” was enacted; that number has since grown to 5,072.
Example of “stimulus” spending:
A highway beautified by fish art in Washington was financed with $10,000 in stimulus funds. 12 silvery Chinook salmon decorated a landscaping median on Canal Drive in Washington. I’m sure the salmon fish art is beautiful, but spending $10,000 for metal fish smells a little fishy.
