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Evaluating the Senate Stimulus Plan

The Senate stimulus package released this week is a solid improvement over the House/White House compromise plan. The primary reason is that the Senate proposal, tailored by Democratic Senator Max Baucus of Montana, provides low- and moderate-income working families with rebates that are the same size as the rebates going to families at higher income levels. The House package gave low- and moderate-income families smaller rebates than their wealthier counterparts.

Senator Baucus also raised the ceiling on the rebates. Whereas the House plan capped eligibility for the full rebate at $75,000 for individuals and $150,000 for couples, Baucus puts the caps at $150,000 for individuals and $300,000 for couples. The rebates themselves are slightly smaller, however. The House plan gave individuals a maximum of $600 and couples a maximum of $1,200. The Senate rebates max out at $500 and $1,000.

According to the Center on Budget and Policy Priorities:

Under the House bill, a mother with one child who works full time at the minimum wage would receive a rebate of $600, while a mother with one child and an income of $75,000 would receive a rebate of $900, and a married couple with no children and an income of $150,000 would get $1,200. The Finance Committee proposal [pushed by Baucus, the Senate Finance Committee Chair] would reduce or eliminate these disparities.

Another comparison is a little less flattering to the Senate plan. Under the House plan, a couple making a very comfortable $250,000 a year doesn't get a rebate. Under the Senate version, the couple gets the full rebate of $1,000. Giving the rich rebates is generally considered ineffective stimulus, because they are unlikely to immediately spend the of money given back to them (thus not pumping money into the economy, the purpose of any stimulus plan).

The Senate plan inserts another provision that is particularly progressive. It extends unemployment insurance for 13 weeks for jobless Americans who have exhausted their regular unemployment benefits. And job seekers who live in states with very high unemployment would get an extra 13 on top of that, for a total of 26 additional weeks.

Extending unemployment benefits is considered a key method of economic stimulus, because dollars given to the unemployed are likely to be spent immediately on necessities.

According to the CBPP, America's unemployed need help:

In January 2008, the overall unemployment rate was 4.9 percent, and the percentage of all unemployed workers who had been unemployed for 27 weeks or more was 18.3 percent. At the start of the last recession in March 2001, by contrast, the unemployment rate was 4.3 percent and the percentage of the unemployed who had been out of work for at least 27 weeks was 11.1 percent.

Comments

Ignoring the fact that I believe that rebates will do little to stimulate the economy (and will they even offset the cost of increasing the already huge debt?), I feel that both proposals have too high a cap. Since the median income is around $45000 or less, why not a cap of $50000 for individuals, and $100000 for families. That would mean that I wouldn't get any (and I'm certainly not living high), but too bad.

I firmly agree with extending unemployment benefits, since these are the people that are arguably most affected by the downturn. But Bush early on made clear his disdain for such a course. The fact that the unemployment rate dropped last month despite a loss of jobs makes clear (to me anyway) how bogus the unemployment measure is.

Posted by: DaveD on 02/02/08 at 5:49 AM Respond

Let's see...borrow money from your "dealer" so that you can turn around and buy more "junk" from your "dealer".

Wow...How BRILLIANT!!!

Posted by: Hajji on 02/02/08 at 8:53 AM Respond

A stipend is not a solution to failed policies it is a continuation of the same.

I expect the people in financial trouble will be able to use the money but they can always use more money. The debt created day by day is snowballing for those mismanagers - both individually and on our account by a government with a pathological spending addiction.

We have the evidence a trillion dollar military is excessive and unable to protect and defend our soil under all circumstances so we need to reasonably manage the risk and quit the fear mindset.

The intelligence cost of over $40 billion a year really needs to be reconciled and answer for earlier NIE's that were dead wrong or are we to assume we bought bunk for that years budget?

Corporate welfare has gone off the charts of insanity - why are we still giving tax credits and subsidies to oil companies? They have been racking up record breaking profits after record breaking profits and yet we have to do more to get them to refine more product? That they will use their windfall to reduce the cost, the use or the pollution their product creates?

All of this and the big energy dollars can consume our media or compel the message and most TV watchers absorb the pabulum always wishing for more - never demanding it.

Posted by: capt on 02/02/08 at 10:45 AM Respond

Excuse me, but isn't the federal government in a financial crisis? Why are we giving Rebates to the people. I will forfeit my rebate in exchange for a reduction of $1.50 on gasoline, $1.50 on a dozen of eggs. $2.50 for a gallon of milk, $1.50 on a loaf of bread, $.50 on cucumbers, $1.00 on lettuce. I could go on and on but I'll stop here. Do this and I guarantee we will stimulate the economy.

Posted by: MSO on 02/02/08 at 11:03 PM Respond