WPA: Unemployed Man in Soup Kitchen

WPA: Unemployed Man in Soup Kitchen

House Democratic and Republican leaders reached tentative agreement on a "stimulus package" yesterday, and President Bush quickly praised and endorsed it. That would be the President whose economic stewardship has been one of the worst in our history and the Republican leadership that has spent the last year cynically obstructing virtually every worthwhile proposal the Democrats have sponsored.

So the question before the American people is whether any package that has the agreement of this President and Republican leadership is worth doing. Or is this really a package designed merely to boost Congress' and Bush's dismal approval ratings?

Ian Welsh last night provided a helpful guide on what Congress might include in a good economic stimulus bill, complementing this post from Tula Connell. It's worth rereading these posts, but to summarize (paraphrasing), Ian suggested at least three main objectives:

(1) Focus relief on those who most need it. That means getting extra money to the poor and middle class and not worrying about those with higher incomes. Historically that included those who lost their jobs and those relying on food stamps, along with those in the lowest income tax brackets as well as those who may not make enough to pay taxes.

(2) Provide real stimulus by getting people to spend more. The goal is to increase "aggregate demand" -- spending -- so getting money to those most likely to spend it quickly is achieved via the first point, getting the money to those who most need it.

(3) Include measures that address the economy's structural problems. As Ian noted, "There's a lot wrong with the US economy, but the MoveOn idea of starting a Clean Energy Corps and investing in green energy to reduce energy costs is a good idea." Other ideas might include addressing the causes of the housing and associated financial collapse.

Judging from the Washington Post's description, the tentative agreement ranges from fair to mediocre to wasteful. Krugman just calls it "bad." (h/t Knut) While the deal provides rebates to tax payers below a certain income cap and some relief to workers who don't pay taxes, it inexplicably leaves out the most effective items like extended unemployment benefits and increased funding for food stamps.

Under the deal, nearly everyone who earned a paycheck in 2007 would receive at least $300 from the Internal Revenue Service -- $103 billion in total. Most people would receive rebates of $600 each, or $1,200 per couple. Families with children would receive an additional payment of $300 per child. Workers who earned at least $3,000 last year -- but not enough to pay income taxes -- would be eligible for $300.

. . . Rebates would be limited, however, to single taxpayers with adjusted gross income up to $75,000 -- up to $150,000 for couples. Above that, the benefit would phase out until hitting zero for individuals with adjusted income of about $87,000, $174,000 for couples.

For more examples, see this AP breakdown (h/t Ian)

States traditionally provide assistance to those in need, but during a recession, state budgets suffer, forcing state legislatures to curtail funding of Medicaid and other vital programs. Democrats wanted to provide additional funding for state relief, but the Republicans refused. They also refused to agree on any public works funding, even though near-term public infrastructure investment is sorely needed and makes economic sense.

The WaPo story claims Pelosi agreed to give up on these latter ideas -- all consistent with a good plan -- in exchange for Boehner dropping objections to payments to non-tax payers. But in reality, that agreement merely constrained the mostly good parts to 2/3 of the total $145 billion package, which left the Republicans enough of the total to fund their pet tax breaks for businesses:

In return, however, the deal includes provisions from Boehner that would allow faster tax write-offs for corporate investment and immediate tax deductions for small-business investment in plants and equipment.

So private investment gets 1/3 of the pie; desperately needed public investment gets zip. Sound familiar? There are also provisions allowing Fannie/Freddie to purchase higher cost mortgages -- that looks like a lending industry bailout. But the deal includes nothing to address the underlying causes of the current housing crisis and its associated financial melt down.

The Senate Finance Committee will take up the issue next, with Democrats already promising to restore the "good plan" elements and Republicans opposed to letting them in. The results so far are not promising.