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Jewish World Review
January 27, 2009
/ 2 Shevat 5769
When Maynard met Nancy
Nancy Pelosi doesn't, in Obama chief of staff Rahm Emanuel's words, want to "waste a crisis." She has concocted a hideous stimulus brew brimming with eye of newt, toe of frog and every other exotic ingredient favored by her Democratic colleagues.
On "This Week With George Stephanopoulos," Pelosi defended the inclusion of millions in funding for contraception. She suggested that the funding would reduce costs to the states by discouraging the bearing of children if we can't create more jobs, at least we can forestall the creation of more people. Maybe the House speaker doesn't realize that John Maynard Keynes, not Thomas Malthus, is the economist of the hour.
The bright shining original Keynesian conception of the stimulus bill was that it would rebuild the nation's famously "crumbling" infrastructure roads, schools, the energy sector while immediately creating jobs. A glorious win-win! If only it were possible to build things quickly enough.
According to the Congressional Budget Office, only $4 billion out of $30 billion in highway spending, $3 billion of $18.5 billion in renewable-energy spending and less than $7 billion of $14 billion of school-construction spending would be spent in the first two years. If spending will take place in 2011 or later, there's no reason for it to be jammed into a hastily passed stimulus bill.
Unless, of course, Democrats want to use the crisis atmosphere to bypass the normal budgetary process for long-term spending. Almost $16 billion for Pell Grants for college students and $1.9 billion for basic scientific research won't stimulate the economy in the near term. Neither will funding for the National Endowment for the Arts ($50 million) or for the National Mall ($200 million).
Pelosi's old criteria were that stimulus be "timely, targeted and temporary." That was before her caucus weighed in with the tardy, ramshackle and permanent. Countering the CBO, Democrats note that nonconstruction elements of the bill reach people faster, both the boosts for food stamps and unemployment insurance and the $275 billion in tax relief. This concedes that putting money directly in people's hands is the timeliest stimulus.
Building on that insight, a cut in the payroll tax rate which is paid by both individuals and businesses should be the bill's centerpiece. By rights, such a cut should have bipartisan appeal. For Democrats, a payroll tax cut affects those lower-income workers who don't make enough to pay income taxes. (President Obama already supports a tax credit to offset the payroll tax.) For Republicans, it's a genuine tax cut that benefits employers, too.
But Democrats prefer spending on their pet causes. Many congressional Republicans, meanwhile, foolishly act as if only the income tax matters when roughly 60 percent of wage earners pay more payroll taxes than income taxes.
A cut in the payroll rate would appear in small increments in workers' paychecks, making it more likely to be spent than a lump-sum payment (like last year's rebate checks). It would increase the take-home pay of strapped workers with no choice but to spend it. Finally, it would reduce the cost of labor for employers and make it easier at the margin to make new hires or avoid layoffs.
Nearly immediate, a payroll tax cut would be felt now, at what is likely the nadir of the recession. A halving of the payroll rate would funnel $400 billion to individuals and business, a total holiday $800 billion. The cut could be indefinite, to be rolled back when the economy picks up again, or made permanent and replaced by something else (say, an increased gas tax). The payroll tax funds Social Security and Medicare, but those programs can subsist on borrowing for now like the rest of the federal government.
No one can be sure if fiscal stimulus will work. We do know that relief for individuals and businesses right away must help more than subsidizing a wind farm in 2012.
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© 2009 King Features Syndicate