Washington Matters


Another Stimulus? A Forbidden Subject


Democrats won't say it publicly -- not after last week's swift backlash from Republicans -- but a follow-up economic  stimulus (the third when counting last fall's financial market rescue signed by President Bush and last month's broader stimulus signed by President Obama) is a distinct possibility later this year if the economy doesn't improve. And yes, political fur will fly over whether Congress can get anything right with the word stimulus in it.

Despite all the bailout fatigue in Congress, lawmakers may yet have to swallow hard and go back to the well this summer or fall. Months more of grim recession headlines, layoffs, unemployment, foreclosures, teetering banks and continuing tight credit -- and the public anxiety surrounding it all - would spur debate about what more needs to be done. Many influential economists, including Paul Krugman and Mark Zandi say something additional and very substantial will be needed, no matter the political mood and stratospheric national debt and deficit. 

The February stimulus plan, a two-year measure with tax cuts, unemployment aid, public works funding and state aid passed in a sharply divided Congress, has hardly begun to be implemented. Less than 1% of the $787 billion has been distributed. But the debate over whether it was too big or too small is in full swing, spurred by the loss of 2 million jobs in the last three months. That's almost half of what the White House and others optimistically say the stimulus will create or save.

House Minority Whip Eric Cantor, R-VA, was among the first to jump on suggestions of another stimulus, citing it as proof that the February stimulus was a grand failure. Democrats could just as easily cite it as proof that Republicans shouldn't have kept the lid on the size of the stimulus. But it's premature for either side to judge, and it would be a big mistake to come down for or against another bill simply because of its effect on the political debate.

Advertisement

But that may not stop it from happening. It's easy for either side to make claims about the stimulus because it will be impossible to know how much of whatever happens to the economy will be a result of the spending.  Republicans will be tempted to use it because they are itching for the 2010 elections to be a referendum on the Democratic economic stewardship. It's a political minefield for Democrats, allowing Republicans to charge Democrats with spending like madmen and wasting so much money for naught and now getting ready to throw yet more taxpayer money in a hole.

The next sparring may be over Democratic counterpunches that Republicans must want the economy to fail since they are badmouthing the stimlus so much. And that's a little silly too. Republicans certainly want a strong economy no matter what, but they'll never cite the stimulus measure as the silver bullet that turned it around. That can be debated ad nauseum. There'll never be ultimate proof of what worked and what didn't.   

Stim redux particulars. A follow-up stimulus package, if one is crafted, would likely be heavier on business tax breaks than the last package and with much less emphasis on public works, road work, mass transit and such. Small firms would benefit, especially with targeted tax breaks and expanded assistance from the Small Business Administration.

Larger companies could do well. They may get what they failed to score in the February bill, a five year carryback on losses. Language was narrowed to make that apply only to small firms. But a larger loss carryback plan has a good deal of support and may gain momentum in a follow-up stimulus. Obama backs it.

There might also be additional aid to states, struggling to keep social safety net programs operating as they plan their 2010 budgets.

Obama's earlier plan to give tax incentives to companies for hiring workers domestically probably would not make it for the same reason it was not included in the February bill. It's more complicated than it sounds and could be hard to implement or to keep from being abused. Also, there'll be talk of lowering corporate tax rates, but that a corporate tax cut could be too pricey and controversial to pass.

 




You can get valuable updates like Washington Matters from Kiplinger sent directly to your e-mail. Simply enter your e-mail address and click "sign up."

More Sponsored Links


DISCUSS

Permission to post your comment is assumed when you submit it. The name you provide will be used to identify your post, and NOT your e-mail address. We reserve the right to excerpt or edit any posted comments for clarity, appropriateness, civility, and relevance to the topic.
View our full privacy policy


Advertisement

Market Update

Advertisement

Featured Videos From Kiplinger