Will the Economic Stimulus Be Too Compromised to Work?

By Joshua Holland, AlterNet. Posted January 16, 2009.

More enlightened pols generally want to beef up social programs targeted at vulnerable segments of the population, and that's especially true at this moment in time.

In recent history, bipartisanship has generally resulted in a "compromise" that entails the conservatives getting some but not all of their cuts for those at the top of the heap and progressives getting some but not all of their wish list. Math, being for the most part non-ideological, dictates that the result is borrow-and-spend, with deficits mounting, and the resources needed to service that debt taking an ever-greater chunk of the government's revenues.

That dance of poor governance is frustrating in normal circumstances, but with the economy still teetering on the brink of disaster, too much "post-partisan" dealmaking can result in a whole lot more pain in the real world than might otherwise be the case. 

That's because when it comes to stimulating the economy, the facts have a distinctly liberal bias. Corporate tax cuts, cuts on investment gains and other gifts to the wealthy do next to nothing to kick-start the economy, while aid to the unemployed, help for cash-strapped governments and other progressive measures have the potential to make a significant impact.

According to an analysis by economist Mark Zandi of Moody's (who happens to be a conservative Republican), each dollar spent on corporate tax breaks results in an economic boost of 30 cents; a dollar for reducing capital gains taxes results in 37 cents worth of stimulus, and each dollar in lost revenues from making Bush's tax cuts permanent gives the economy a miniscule 29-cent lift.

Meanwhile, a dollar spent on infrastructure gives the economy a boost of $1.59; a dollar in aid to cash-strapped states gets $1.36 back in economic activity, and each buck spent on food stamps provides $1.73 worth of stimulus.

Economist Dean Baker at the Center for Economic and Policy Research looked not only at the various approaches' impact in terms of dollars, but also on employment. He estimated that $100 billion spent on infrastructure investments would yield about a million net new jobs, while that same amount spent on corporate tax breaks would yield 200,000 jobs -- one-fifth of the bang for the same buck.

Obama has hoped for broad bipartisan support for the package, but the question is how much cash he will throw toward corporate America to get it. The transition team was reportedly considering structuring as much as 40 percent of the recovery package as tax cuts (although some of those cuts were targeted lower down the economic food chain).

There's some room for optimism on this front. According to The Hill, "Obama told Democrats behind closed doors that he would listen to their suggestions to reduce the number of tax cuts in the package and spend more on infrastructure projects and renewable energy development" than he'd previously planned. On Monday, his transition team leaked that it was dropping a corporate tax credit for creating new jobs that was widely criticized as a pointless giveaway. About a third of the value of the Democratic proposal released this week are structured as tax cuts -- a smaller chunk than what Obama's team had floated earlier.

Obama is coming into office at a time of deep crisis and with a pocketful of political capital. His administration needs to get this measure -- one that will likely define his presidency -- right. There won't be a second chance down the road; the political moment will end with the new president's honeymoon period.

See more stories tagged with: democrats, economy, obama, stimulus package

Joshua Holland is an AlterNet staff writer.

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