MotherJones Blog: Parsing the Compromise Stimulus Deal

«--Previous Post | Blog Index | Next Post--»

Parsing the Compromise Stimulus Deal

The stimulus package President Bush and House leaders concocted on Thursday is better than the President's proposed package but has left some economists wanting more.

If you don't know the outlines of the plan, here they are. The plan gives individual tax filers up to $600 back in the form of a tax rebate and gives couples up to $1,200, with an additional $300 per child. The plan also includes tax cuts for businesses. The total value is $150 billion.

Democrats agreed to the plan because it doesn't make the Bush tax cuts for the wealthy permanent and because the tax filers eligible for the full rebate are capped by income at $75,000 (filers lose 5 percent for every $1,000 in income above that amount). The White House agreed to the plan because it didn't include any additional unemployment benefits or an increase to the food stamp program, which President Bush called "unnecessary spending projects." There were plaudits all around.

But for all the self-satisfied back-slapping in Washington, outside observers were somewhat ambivalent. Conservatives wanted deeper tax cuts, and liberals were underwhelmed by the package's relief for the poor.

"Useful, but flawed and probably not enough," said a New York Times analysis, citing economists who criticized the plan because it will not act fast enough: rebates checks will not be mailed until May at the earliest. The rejected increases in unemployment benefits and food stamps would provide more immediate help (and—bonus!—would target those most in need). Robert Greenstein, executive director of the Center on Budget and Policy Priorities pointed to Congressional Budget Office numbers showing that unemployment insurance and food stamp provisions would inject "more purchasing power into the economy within one to two months." He also predicted the corporate tax cuts in the plan, similar to those found in past packages, would have "only modest stimulative effects."

Greenstein did praise the package for not leaving millions of low- and moderate-income Americans unaided, as the White House's original plan would have done.

Lawrence Mishel, president of the Economic Policy Institute, called the roughly $50 billion in aid for businesses "scandalous," saying, "It is common sense and established economics that businesses invest and hire when they have customers—not when they get subsidies for equipment to make things they can't sell."

The Senate plans on taking a long look at the House/White House plan and then making adjustments as the Senators see fit, so some of the criticisms may be dealt with. Others, though, could arise. The final details matter: billions of dollars are at stake. But what both Democrats and Republicans are counting on is that whatever specifics end up in the final package, as unsatisfying as they may be, will be enough to satisfy the number one customer: those jittery markets across the world.

Update: Krugman weighs in here. He's not impressed.

Comments

How does this solve the lack of faith the rest of the world has in the US?

Posted by: TUBBY on 01/25/08 at 11:07 PM Respond

How exactly does dramatically increasing (doubling?) our national deficit help restore our economic credibility? Is putting us over the $10 trillion mark going to make them think better of the dollar? Of extending yet more credit?

And Mishel is right on: trickle down economics does not work, has never worked, and will not work. If you want to stimulate the economy, do it from the bottom.

Posted by: evought on 01/26/08 at 2:02 AM Respond

The flip side of fed interest rate cuts is an increasingly devalued US dollar, already in a downturn against international currencies. Increasing spending in a country that is already addicted to spending is like treating an alcoholic's depression with a stiff drink. Until our trade deficit is addressed in real terms, these are all ill conceived bandaid efforts. China alone accounts for $725.8 billion of the U.S. trade deficit.

Posted by: Jim P on 01/26/08 at 11:02 AM Respond

Screwed AGAIN ... and again, and again ...

Posted by: BloggerRadio on 01/27/08 at 4:51 PM Respond

lets see, govt borrows 150B and then gives it out like it grows on trees. I think they try this in S. America every now and then. Americans are so foolish to belive this scheme.

Posted by: bill on 01/27/08 at 8:15 PM Respond

Face it, these two parties do not have a clue. The two captains are sitting at a table in the poop deck roaring drunk, while the wheel spins...

"Drive the dollar into the sea, I say!
No, throw them a fish and make them swim!
No, teach them to swim and they will fish from there!
No, make them walk the gangplank and have another drink! Band-aids I say!"

Meanwhile the banking gears come apart in the wheelhouse.

Posted by: elydog on 01/28/08 at 11:46 AM Respond

Its Trickle-Down Economic Theory at play! Its Bush's last gift to Corporate America!!

Posted by: Steve Dallas on 01/28/08 at 1:34 PM Respond

It means what it meant to be an American before the compromise: The rich will continue to get richer, the gap between the rich and poor will continue to expand, and those of us in the middle class that have decent jobs but make less than 6-figures will continue to foot the bill. Corporations, the rich that do nothing but inherit, and corporate shills (like our Congress for example), will always thumb their noses and look down on the rest of us.

Posted by: buzzbike on 01/28/08 at 2:48 PM Respond

This is the dumbest thing that could come out of Congress and the Whitehouse. This shows what lazy people will do when other people's money is redily available. You 'stimulate' the economy by creating long term jobs and stop wars. This is the perfect opportunity to get rid of all of this current crop of politicians.

Posted by: Edward on 01/30/08 at 1:02 AM Respond

Posted by: Edward Thomas on 01/30/08 at 1:03 AM Respond

There is more to this than meets the eye. There is some bad juju coming down the lane and this handout is a lame attempt to lull the masses back to sleep.

You see, in the last twenty five years we were the largest creditor nation and today we are the largest debtor and the dollar is coming unpegged.

Posted by: Ya Know... on 01/31/08 at 10:49 PM Respond