And what of the plan being put forward now? As crafted, it is unlikely to produce the desired results. For a similar amount of money, the government could essentially cut the payroll tax in half, taking three points off the rate for both the employer and the employee. This would put $1,500 into the pocket of a typical worker making $50,000, with a similar amount going to his or her employer. It would provide a powerful stimulus to the spending stream, as well as a significant, six percentage point reduction in the tax burden of employment for people making less than $100,000. The effects would be immediate.The whole excuse for this absolutely huge spending bill is that we need to get lots of money into the system as fast as possible because people are afraid to spend their own money. And we need to get that money into the system fast and that's why we needed to evade the normal procedure for marking up a bill in committee and why we needed to go outside the normal budget procedures. But then they came up with a bill that spreads the spending out so that a relatively small percentage of the spending in the bill would take place this year or even next year. So it's not stimulus but typical spending on Democratic priorities. If what they were concerned with was stimulus they would be looking for ways to get that money into the system now and not after 2012. A cut in the payroll taxes would do that so much more efficiently than the present bill.
By contrast, the stimulus now under consideration would suffer from the usual problems of government spending. The Congressional Budget Office and the Joint Committee on Taxation have calculated that only $170 billion, or about one-fifth of the $816 billion package will be spent in fiscal 2009. An additional $356 billion will be spent in 2010. That leaves $290 billion to be spent when even the most pessimistic forecasters think the economy will be in recovery mode.
Some of the longer-term investment projects proposed are quite worthy; some are not. Either way, they are not stimulus. The administration and the Democratic congressional leadership claim that the infrastructure projects, mainly carried out by state and local governments, are "shovel ready." In fact, the legislation gives states a full year to merely sign a contract to begin spending half the money, and another year to sign a contract to spend the second half. As anyone who has ever dealt with a contractor knows, the money tends to be spent months or years after the contract is signed.
Whatever they decide to do, perhaps they could follow the advice of Alice Rivlin, Clinton's budget director.
In testimony before the House Budget Committee yesterday, Alice M. Rivlin, who was President Bill Clinton's budget director, suggested splitting the plan, implementing its immediate stimulus components now and taking more time to plan the longer-term transformative spending to make sure it is done right.Is she being partisan or just advocating some common sense?
"Such a long-term investment program should not be put together hastily and lumped in with the anti-recession package. The elements of the investment program must be carefully planned and will not create many jobs right away," said Rivlin, a fellow at the Brookings Institution. The risk, she said, is that "money will be wasted because the investment elements were not carefully crafted."