Thursday, February 12, 2009

Agreement on the Stimulus

This happened a lot faster than I thought it would. Yesterday, the House and Senate had ironed out the differences between their two recovery packages to agree on a $789 billion bill. Senate Majority Leader Reid went out in front of the television cameras to boast:
“The middle ground we’ve reached creates more jobs than the original Senate bill and spends less than the original House bill.”

The Washington Post noted that, after all the negotiating and compromising, “the bill followed remarkably closely to the broad outline that Obama had painted more than a month ago,” with a roughly 60-40% split between spending and tax breaks. That is still a terrible split. At best it should have been a 70-30% or even better a 75-25%.

That said the compromise between the House and the Senate did make vital improvements to the Senate version, which would have created 9 to 12 percent fewer jobs than the version passed by the House while costing $17 billion more.

The new compromise cuts out big business giveaways, restores education funding, and raises funding for science research, among other improvements to the Senate bill:
– Eliminates big business tax giveaway. The compromise cut a provision from the
Senate bill that allowed companies of any size to claim an estimated $67.5 billion in tax refunds this year and next, by allowing companies to write off losses from 2008 against taxes paid over the last five years.
– Restores House funding of food stamps. The Senate had granted $16 billion in food stamp aid, but the new compromise expands that to the House’s full $20 billion funding.
– Removes nuclear loans. The $50 billion in loans for the nuclear industry, which were snuck into the Senate bill by “budget gimmickry” and which would not have created a single job for many years, were completely eliminated by the conference committee.
– Slashes tax cut for rich homeowners. The Senate bill granted a $15,000 tax cut to new home buyers, a provision Nobel Prize winner Paul Krugman called a “bonus to affluent people who flip their houses.” The new compromise “drastically reduced” the tax credit, cutting the overall cost from $35 billion to about $5 billion.
The compromise bill allocates $30 billion for smart grid technology and energy efficiency measures and nearly $46 billion to fund education and modernize schools, which is considerably higher than the Senate’s $39 billion total.

The Wall Street Journal also notes that the compromise significantly “expands federal aid to an array of programs aimed at the poor and jobless, with billions of dollars for health care, unemployment insurance, food stamps and other programs.”

Though the compromise bill is an improvement over the Senate version, it's too small and still includes non-stimulative tax breaks. The spending in the bill, the most stimulative component, fell from $604 billion as introduced in the House to $637 billion when later passed by the House, falling again to $545 billion in the Senate-passed version. The final compromise has only $513 billion in spending, with $276 billion in tax breaks.

One of the most egregious problems with the compromise is the tax breaks. Some of these tax breaks, such as the credit for new home buyers, are particularly non-stimulative, and the largest tax break is the $70 billion to spare millions of Americans from paying the alternative minimum tax. I am still not sure why the AMT is in there; the AMT has nothing to do with recovery. The AMT will offer no stimulus to the economy, and it would have been taken care of later in it's own bill, as has happened every year for over a decade. This was a wasted $70 billion. That $70 billion could have really helped the states, or gone into infrastructure investment.

Though President Obama admitted this week that “the plan is not perfect,” it’s clear the congressional compromise is a dramatic improvement over the Senate bill passed earlier this week. The final bill, after passing both houses of Congress, is expected to arrive on Obama’s desk no later than Monday.

No comments: