Layoffs are cascading across the country. The recession is spreading across the globe. The Federal Reserve has cut interest rates ten times with little effect. Everyone agrees it is time for the government to act immediately to help kick-start the economy, but Congress has adjourned for a holiday recess without passing an economic stimulus program. The reason: the largest corporations decided that the national crisis was their best shot to raid the federal treasury and Republicans immediately set out to help them.
Much to their own amazement, Democrats in the Senate resisted the GOP effort. The question now is whether the president will bow to pressure from Congressional Republicans and try to finish the heist before the public catches wind of it.
This caper all started in the days after Sept. 11, when Federal Reserve Chairman Alan Greenspan called for a $50-100 billion stimulus package to pump life into the staggering economy. In the bipartisan spirit of the moment, the president signed off on principles drawn up by leaders of both budget committees: that the stimulus package be balanced between spending and tax cuts, be temporary in duration to avoid running up permanent deficits, be targeted to those most in need, and have immediate effect.
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The Economic Detriment Package
Nobel Prize-winning economist Joseph Stiglitz has serious concerns about the short-term effectiveness of the Bush administration's economic stimulus package -- and the long-term risks it may pose.
Then the business lobby kicked in. The lobbyists realized the growing support forming behind a stimulus package presented them with a great chance to pocket tax breaks that they'd sought for years -- to the tune of tens of billions of dollars. House Republicans eagerly assisted them, forcing through a package -- adopted in a party line vote -- that violated every one of the principles the president had previously embraced.
The House bill isn't balanced; it consists almost entirely of tax cuts, most of them for corporations and the wealthy. It isn't temporary; the corporate and upper income tax breaks are permanent. It isn't targeted to those most in need; the working men and women who've lost their jobs in the downturn will get little if any aid. It will provide little immediate stimulus to the economy; the tax cuts will instead contribute to large deficits down the road.
Moreover, the bill fails to meet basic economic criteria. Corporate tax cuts don't work very well in a recession, when businesses need customers, not capital. Congress just forked over $15 billion to the airline companies -- which still proceeded to lay off nearly 100,000 workers, citing a sharp downturn in the number of passengers.
Permanently eliminating various corporate taxes doesn't pass the economic sniff test, either. A permanent repeal removes any incentive for companies to make new investments while the economy is in recession. For example, the largest single item in the House bill allows companies to write off new investments at a much faster rate. The assumption is that it will encourage companies to make investments now while the economy is in trouble. But the House bill extends the write-off for three years, removing any incentive for a company to make an early decision.
The bill would also permanently legitimize the tax dodge -- worth $21 billion over 10 years -- that allows financial service corporations to avoid paying taxes on income made abroad, provided they don't bring the money home. This will be good for General Electric and perhaps for Germany, but it won't do anything to get our economy moving. The House bill also accelerates the upper income tax cuts passed in the original Bush tax "relief" bill. An estimated seventy-five percent of American households would get exactly nothing from this bauble.
But that's not the worst of it. The House bill repeals the alternative minimum corporate tax, the tax signed into law by Ronald Reagan that ensures that profitable companies pay at least something in taxes no matter how clever their accountants. To add insult to that legislative injury, the bill doesn't only eliminate the tax permanently; it repeals the tax retroactively for 15 years. Sixteen major companies will pocket a cool $7.4 billion in instant tax rebates. IBM would get $1.4 billion; Ford $1 billion; General Motors and General Electric over $600 million each. Many of the big rebates -- no surprise here -- go to oil and gas interests. This isn't a stimulus, it's simply a scandal.
Treasury Secretary Paul O'Neill initially dismissed the House bill as "show time," for contributors and lobbyists. But Majority Leader Dick Armey and GOP Whip Tom DeLay, the House's conservative enforcers, marched up to the White House to get the Bush administration back in line. The president immediately abandoned the principles he'd signed onto, and announced he "was pleased" with the House bill.
Senate Democrats on the Finance Committee looked ready to deal. But that roused union leaders, already livid at the airline bailout that had done nothing for workers, to launch a counter-lobbying campaign. Senate Democrats responded by coughing up a surprisingly decent economic stimulus bill of their own, one that hews far closer to the initial criteria, featuring spending on domestic security, help for unemployed workers and temporary investment credits rather than open-ended tax breaks for corporations and the wealthy.
The Democratic proposal calls for strengthening the nation's public health system, beefing up defense of nuclear and other power plants and bolstering transportation safety. The approach provides economic stimulus that is not only badly needed but terror-proof. Terrorist acts may lead fearful consumers or companies to save their money. Public spending will continue regardless and can put people back to work.
Extending unemployment insurance and helping workers retain health insurance coverage for their families used to be a bipartisan policy. Now Armey scorns it as not "commensurate with the American spirit." In fact, unemployment insurance is an essential counter to a recession, but today only about 40 percent of workers laid off are eligible.
Democrats still offer corporations their pound of flesh. The bill allows companies to write off investments more quickly, and at a far lower rate than the House bill. But the Democratic provision applies only to those investments made in the next year. Seeking some bipartisan support, Democrats also added a grab bag of special interest tax cuts -- a subsidy for bison meat, a tax break to turn chicken waste into an energy source -- which has elicited much faux populist outrage from conservatives.
Neither the House bill nor the Democratic alternative can pass in the Senate as they now stand. So it's up to the president to cut a deal. Thus far, he's vowed to veto any further spending on domestic security and offered only token assistance to the unemployed. He's pushed to lock in corporate and upper-income tax cuts. With citizens distracted by anthrax and Afghanistan and families gathering for the holidays, the administration may figure that it has enough political cover to give corporations and wealthy contributors their way. It would be hard to invent a greater disgrace in a time of war and recession.