The Stimulus Bill in Perspective
Republicans are making a big deal about the cost of the stimulus bill just passed by Congress. While $800 billion is certainly a hefty price tag, some perspective is in order here.
In 2001, President Bush's first legislative "accomplishment" was pissing away our then existing budget surplus with a $1.35 trillion tax cut bill. And the $1.35 trillion number was itself incredibly deceptive. It was achieved through the unprecedented use of sunsetting provisions designed to dramatically reduce the apparent long term costs of the legislation. The people who wrote the bill fully expected that the cuts would eventually be made permanent, that it would be politically infeasible to allow them to lapse. They just figured they could sell larger tax cuts if they pretended that they would all expire in 2010.
The 2001 tax cuts were followed by additional tax cuts in 2002 and 2003. These cuts have already cost the federal government significantly more than the entire cost of the stimulus package, and when all is said and done, their cost will dwarf that of the stimulus package.
And the most tragic part about it is that we have virtually nothing to show for all that spending. No bridges. No infrastructure. No college degrees. No reduction in the national debt. Nothing.
The Bush tax cuts were skewed dramatically toward the wealthy. In 2004, 60% of the tax cuts went to the top 20 percent of income earners with over 25% going to the top 1% of income earners. Those numbers have increased since then as the cuts to the estate tax have taken effect.
And where did that money go? Well, when already wealthy people get additional income, they generally invest it as opposed to spending it (which is why upper income tax cuts are generally ineffective as stimulus). The majority of this money likely went into the stock market or into various kinds of hedge funds. And with the worldwide crash in equities over the last five months, much of that money has now evaporated. It's just gone. Indeed, the tax cuts -- by flooding the investment sector with additional capital -- likely contributed to the very frenzy of risk-taking that led us to where we are today.
The Obama stimulus bill is expensive, but at least we know two important things about it: 1) its price tag has not been artificially lowered through the use of deceptive accounting and legislative gimmicks; it costs what it costs, and 2) when all is said and done, we will at least be able to point to real, tangible things that the money paid for. That's much more than can be said of the Bush tax cuts.
I've been convinced for a long time now that historians will look back on the early part of the Bush administration as the biggest missed opportunity in modern American history. An unexpected economic boom in the 1990s put us in a position to finally put our national fiscal house in order. We could have paid back much of our debt and taken steps to shore up our future liabilities. But instead of we took a bunch of money and lit it on fire, and now we are in worse fiscal shape that we have ever been in as a nation, and there's no light at the end of the tunnel. Thank you, President Bush.
In 2001, President Bush's first legislative "accomplishment" was pissing away our then existing budget surplus with a $1.35 trillion tax cut bill. And the $1.35 trillion number was itself incredibly deceptive. It was achieved through the unprecedented use of sunsetting provisions designed to dramatically reduce the apparent long term costs of the legislation. The people who wrote the bill fully expected that the cuts would eventually be made permanent, that it would be politically infeasible to allow them to lapse. They just figured they could sell larger tax cuts if they pretended that they would all expire in 2010.
The 2001 tax cuts were followed by additional tax cuts in 2002 and 2003. These cuts have already cost the federal government significantly more than the entire cost of the stimulus package, and when all is said and done, their cost will dwarf that of the stimulus package.
And the most tragic part about it is that we have virtually nothing to show for all that spending. No bridges. No infrastructure. No college degrees. No reduction in the national debt. Nothing.
The Bush tax cuts were skewed dramatically toward the wealthy. In 2004, 60% of the tax cuts went to the top 20 percent of income earners with over 25% going to the top 1% of income earners. Those numbers have increased since then as the cuts to the estate tax have taken effect.
And where did that money go? Well, when already wealthy people get additional income, they generally invest it as opposed to spending it (which is why upper income tax cuts are generally ineffective as stimulus). The majority of this money likely went into the stock market or into various kinds of hedge funds. And with the worldwide crash in equities over the last five months, much of that money has now evaporated. It's just gone. Indeed, the tax cuts -- by flooding the investment sector with additional capital -- likely contributed to the very frenzy of risk-taking that led us to where we are today.
The Obama stimulus bill is expensive, but at least we know two important things about it: 1) its price tag has not been artificially lowered through the use of deceptive accounting and legislative gimmicks; it costs what it costs, and 2) when all is said and done, we will at least be able to point to real, tangible things that the money paid for. That's much more than can be said of the Bush tax cuts.
I've been convinced for a long time now that historians will look back on the early part of the Bush administration as the biggest missed opportunity in modern American history. An unexpected economic boom in the 1990s put us in a position to finally put our national fiscal house in order. We could have paid back much of our debt and taken steps to shore up our future liabilities. But instead of we took a bunch of money and lit it on fire, and now we are in worse fiscal shape that we have ever been in as a nation, and there's no light at the end of the tunnel. Thank you, President Bush.
posted by A.L. at 10:06 AM
14 Comments:
I am sorry but this whole stimulus bill is ridicules. It does nothing to create long term jobs. These are all short term projects that they want to do. What are all of these people working on these projects going to do once everything is fixed? They will be jobless without any where to turn and the economy will go back down. If we are going to throw money around, lets throw some into creating jobs outside of the government. One job resource that could use a jolt of life is our manufacturing industry. I was reading articles over at americanboom.com about how much of this problem could have been avoided if we had not outsourced all of our manufacturing to China. We need to stop relying on the government to bail us out and start bailing each other out. If we support companies that employ Americans then maybe they will not move to China.
I guess credit is just like Crackâs evil twin
Dave, Dave, Dave.
1) It IS short-term. We need a short-term bump to get some money circulating in the economy. We have a short-term problem that needs resolution quickly.
2) Any construction job is, by definition, short term. You build a bridge, when it's done, so is the contract. But if you build the bridge, you put money in the hands of the workers, the suppliers, the contractors, the suppliers to the suppliers, the grocery stores, etc., etc., and as it moves around it creates demand, and the demand requires more facilities, and then more things get built requiring the guys who built the bridge... Maybe you can see how this goes from here.
3) They aren't creating government jobs. They're buying stuff that's made by the private sector or services provided by the private sector. Private sector jobs. Btw, government has been downsizing for some time now. Example for you: the company I work for handles virtually all visa applications for entry into the US, and handles all the paperwork post adjudication. All outsourced by the government. All private sector jobs. (And, interestingly, all paid by incoming fees; no cost to government. But I digress.)
I agree with you on the China thing. If we move all the middle class jobs overseas, who is going to have income sufficient to buy the products made in China, let alone in the US?
Dave,
Two case studies illustrating the problem with your proposition:
1. A manufacturing company is suffering due to the downturn. They do have contracts to build a product for another company, but, due to their weak bottom line, they decide to move the manufacturing of that product to China to improve their profitability.
2. Another company is doing fairly well, and in a position to expand. They do. In China.
Do you see the pattern here?
Dave,
All I can say is, once they get everthing fixed (which could take a life time), these people will be retiring from their "temporary" jobs.
Something I haven't heard discussed much is how much it would cost society (i.e. the government) in losses if nothing was done. Everyone talks about the cost of the bailout but the cost of no bailout could in fact make the deficit even bigger. In other words, spending this money could actually end up saving money.
I don't have any numbers and I'm certainly not an expert but I would like to see this issue addressed.
I'm happy for the stimulus plan, I think it is a step in the right direction, but it's still annoying to hear about people playing frivolous political games with our energy infrastructure, our children's education, and really the future of the planet. Just listened to a podcast about a book from the progressive movement, talked about how we need to restore our faith in government, and how government needs to reform to be something we can have faith in. I hope Obama can pull it off.
Yes, Bush blew 1.35 trillion on tax cuts that exacerbated speculative excesses and then evaporated in the subsequent market collapse. They also blew at least another trillion, probably two, on the ill-advised Iraq war. That "investment" also went up in smoke and produced nothing of value. The combined costs of these two wasteful exercises dwarfs the cost of the current stimulus that Republicans hypocritically oppose.
Some time back John Conyers commented that after all the money Republicans wasted on Iraq and tax cuts for the rich he never wanted to hear them whine again about spending on important things like health care, education, and infrastructure. I agree.
Republicans have lost the credibility to say anything about spending after the obvious disaster of their faith-based economic approach. They should shut up and let more mature, rational, reality-based people try to lead us out of this mess.
This crisis, as bad as it is, most certainly DOES NOT constitute our worst fiscal shape ever as a nation. Such a blatant disregard for historical perspective cheapens discussion.
Money evaporated? How does that work? Someone has the money...
as usual you can count on right-wing grandstanding. i do not know if this 'stimulus' will work or not, although i prefer krugman over thomas friedman. i am not ready for my 'golden straight-jacket' just yet. either way, the pubs continue to demonstrate their coplete lack of values and their hatred for majority rule (ya know, democracy..., because they spent blood and treasure on a lie and oppose trying to get out a of a very real problem. perhaps jon stewart got it right when he said we should say we are hiding weapons of mass destruction here....
Anonymous ... the evaporation is easy to understand. It's not physical paper bills that disappear, it's the values of things. So when homes and stock market assets decline in the range of $10-15 trillion, as has happened so far in this recession, that money is simply not available to be used in the economy. Assets are only what you can sell them for. If, as has happened, the average U.S. home goes down 25% in value, that loss in value is not someone else's gain. It's gone ... unless and until valuations recover ... which is why Obama is trying to stimulate a recovery.
The problem with the stimulus bill is that 36% of the money is in fact going to tax cuts, not investments in our future.
Of course, if the Republicans had their way, a much larger portion would have gone to tax cuts and there is little doubt that the rest would have been given to probably some combination of Halliburton and Blackwater in sole source deals.
Dave does have a valid point on the concern of long and short term jobs. Short term jobs would get money circulating in the economy again, however, those people who hold those short term jobs would eventually have no job. True, if the jobs helped the economy to recover, the unemployed could find a more long term job. However, why not just skip from a to c? Give money to small buisness owners to create long term jobs and eliminate the need for the short-term job holders to keep shifting careers. If the goal is to jumpstart the economy, why not make it a long-term effect?
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