Morning Bell: A Conservative Alternative to Obama’s Permanent Spending Plan

Conn Carroll /

Last Friday we told you that even by the left’s own ideological criteria, President Barack Obama’s trillion dollar spending plan would fail to stimulate the economy because nothing about the massive spending increases in the bill was temporary. This Sunday the Washington Post wrote an editorial essentially agreeing with us:

[S]ome in Congress and the new administration apparently see the country’s present recession as an opportunity to change the federal government’s spending priorities more generally or simply to reward loyal political constituencies. … [I]t’s risky to make new, multiyear commitments in the middle of a crisis without debate over competing priorities — and without paying for them through some means other than borrowing.

Helping hire, equip and pay police, a $4 billion item under the bill, might be a good idea, but writing checks to individual households for the same amount would do more to stimulate the economy. Ditto for $16 billion in Pell Grants for college students, $2.1 billion for Head Start and $50 million for the National Endowment for the Arts. All of those ideas may have merit, but why do they belong in an emergency measure aimed to kick-start the economy?
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Fiscal stimulus can be a part of the solution, but only if it is “targeted, timely and temporary.” The efforts so far don’t quite match that description.

Our only quibble with the Post’s assessment of Obama’s trillion dollar spending plan is that it is not quite stern enough. There is nothing “targeted, timely and temporary” about the massive and permanent spending increases in this bill. And the Post left out some of the most flagrant examples. Among the hundreds of billions of dollars in new spending is hundreds of millions of dollars for contraceptives. Speaker Nancy Pelosi (D-CA) unrepentantly defended this money as stimulus on ABC’s This Week:

Well, the family planning services reduce cost. They reduce cost. … One of those – one of the initiatives you mentioned, the contraception, will reduce costs to the states and to the federal government.

Got that? If you want to help stimulate the economy, then Nacny Pelosi believes you should not have any more children. Apparently having less children “will reduce costs to the states and to the federal government.” National Economic Council director Lawrence Summers turned in a similar performance on Meet the Press defending the above mentioned Pell Grants and police hiring as “good investments.” Neither of these stimulus defenders even bothered to claim that these spending increases would be temporary in any way. The deficit for 2009 is already projected to exceed $1 trillion. If deficit fueled government spending was effective, than our economy ought to be inn recovery already. Obviously that is not the case. An alternative is needed.

The American economy does not rise and fall with the level of aggregate demand or deficit spending. There are normal processes that launch a recovery and drive an economy. These processes involve individuals and businesses responding to opportunities and incentives. Lower marginal tax rates stimulate the economy because they improve the incentives facing individuals and businesses to work, invest, take risks, and seize opportunities. The centerpiece of an effective stimulus policy should involve two elements:

  1. Make the 2001 and 2003 Tax Cuts Permanent: The economy faces a massive tax hike in 2011 when all of the tax relief enacted in 2001 and 2003 expires. It is difficult for the economy to gain its footing when facing the threat of a punitive tax hike.
  2. Reduce Marginal Tax Rates for Individuals and Businesses: Cutting tax rates by 10% for individuals, small businesses and corporations will reduce the cost of doing business in America and make it easier for Americans to create new private sector jobs.

According to analysis performed at the Center for Data Analysis at The Heritage Foundation using the widely respected Global Insight U.S. Macroeconomic Model, these policy changes would strengthen the economy significantly this year. adopting the Heritage tax proposal would mean that 500,000 more Americans have jobs by the end of 2009, and, by the end of 2010, employment would increase by a million jobs. This two-step tax policy would reduce tax receipts relative to current policy by about $670 billion over five years, a number significantly smaller than Obama’s $850 billion and growing spending plan.

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