Revisiting stimulus package in Congress

A new year brings Congress back to work, but will its business include an effort to extend new job opportunities to the unemployed? A renewed focus on the stimulus package is on order. As you may recall, House Republicans promised some help for the unemployed and the poor only if Democrats would accept additional long-term tax reductions for corporations and the rich. Democrats said no thanks. But even with its conspicuous inequities and inefficiencies, the second House package may be better than nothing. Under current circumstances, Democrats’ most principled stance might be reluctantly to accept a Faustian bargain in order to help the unemployed and then to make the outrageous blackmail an issue in November.

The House tax package does contain much fiscal folly. Its accelerated depreciation provisions, supposed to stimulate business investment during recession, have a three-year time frame. In today’s sluggish economy, most businesses will postpone new investment-perhaps until the economy has started to rebound. If the House bill had proposed a one- year window, businesses would have an incentive to invest now, when the social need is greatest. In addition, speeding up reductions in the top income tax brackets and in the alternative minimum tax puts more money in the hands of those least likely to spend it now, the wealthy.

These considerations led New York Times columnist and Princeton economist Paul Krugman to conclude that failure to pass a stimulus package was part of the good news of 2001: “That doesn’t sound like good news, unless you look at the content of the bills that were actually on the table: huge further tax breaks for corporations and the wealthy, doing little for the economy but further worsening our already dreary fiscal outlook.” Much of the business press shares Krugman’s joy that a stimulus package wasn’t passed, but their enthusiasm has other grounds. They are confident that the recession is bottoming out.

The business press may be right. Left and liberal analysts have often been too eager to predict recession or worse. But the business press itself did not predict this recession and has continually underestimated its depth. We may not have hit bottom. As economic activity declines, states, including Maine, have only just commenced the difficult task of slashing programs. Reductions in state spending, once enacted, will translate into diminished economic activity among those normally hired or contracted by the states. The effects of the economic downturn have in short not necessarily been fully felt or absorbed. Economic expansion abroad or declines in oil prices or unexpected jumps in consumer confidence could still lift this economy, but to count on an automatic upturn may be imprudent.

If economic circumstances may deteriorate further, should progressive Democrats leave themselves open to the charge that they vetoed even inadequate stimulus packages? The most recent House package does have some positive features that at least in the short run outweigh its negatives. The plan includes a tax rebate for lower-income workers who received little or nothing this summer. In addition, the plan authorizes an additional 13 weeks of unemployment benefits for workers in all states who lost their jobs after March 15 and have exhausted their regular benefits.

Both of these provisions would provide the most benefit for low- income workers and for those most likely to be adversely affected by a deep recession. Even tax cuts for the wealthy would stimulate some new consumer spending.

Inadequate as this full package is, I believe that in terms of the risks faced over the next year, its enactment would be better than nothing. The Senate Democratic leadership should allow debate and vote on it. Progressive Democrats could propose amendments to broaden eligibility for unemployment insurance, provide funds for revenue sharing with the states, and finance such expansion by reductions in the long- term tax giveaways to corporations and the rich. Recorded votes on amendments would allow our citizens to know where their representatives stood on these key controversies.

Democrats could thus be well positioned to address economic unpredictability. If the recession deepens, they can properly argue that they supported the unemployed and wanted to do more. In the event of a strong recovery, inflation and budget deficits can be addressed by renewed demands to eliminate the ill-considered giveaways progressives are on record as opposing.

John Maynard Keynes once famously quipped that in the long run we are all dead. The long-term budget busting that Krugman frets about is a concern, especially if federal debt goes to finance luxury consumption and unproductive stock market excesses. Nonetheless, no tax cut is etched in stone. If progressives begin to stake out political positions now, they can address these excesses through ongoing electoral politics. But first we must get to the long term in as healthy a condition as possible.

A reluctant and principled accession to blackmail may be the best way to get there.

John Buell is a political economist who lives in Southwest Harbor. Readers wishing to contact him may e-mail messages to jbuell@prexar.com.