Not enough bang for our 787 billion bucks

February 18, 2009

Why does the stimulus legislation passed by Congress and signed by the president fall so short of what's needed?

THE $787 billion economic stimulus bill that President Barack Obama signed into law yesterday is big. But not big enough.

It's larger than any single measure passed during Franklin Roosevelt's New Deal of the 1930s. But on almost every point, it was falls short of what's needed to deal with the ever-worsening economy--and of what was expected of Obama and the Democrats now that they control Washington.

The legislation offers some help for those suffering the most from the crisis--additional money for unemployment benefits, more spending on food stamps, funds to keep the Medicaid health care system going. But important proposals that would have helped more people, and helped them more effectively, were dropped to placate Republicans, or never raised at all.

Money earmarked for infrastructure projects or promoting green technology represents a reversal of the three-decade-old conservative assault on "big government." But one-third of the $787 billion total is taken up by tax cuts, a holdover from the old neoliberal agenda, and less effective in spurring the economy.

Barack Obama signs the economic stimulus bill

The legislation is, according to the New York Times, "the biggest influx of federal dollars since the days of President Lyndon B. Johnson's Great Society program." But as Times columnist Paul Krugman wrote, "The Congressional Budget Office, not usually given to hyperbole, predicts that over the next three years, there will be a $2.9 trillion gap between what the economy could produce and what it will actually produce. And $800 billion, while it sounds like a lot of money, isn't nearly enough to bridge that chasm."

The stimulus package won't end the crisis--not by a long shot. And the crying social and economic needs it leaves half-addressed, or not at all, will only grow more urgent.

So the Obama administration and Congress will face the same questions again. Whether the answers in the coming months continue to come in the form of compromises and half-measures or they do more to meet people's real needs depends on whether a challenge comes from outside Washington to put pressure on all the politicians.

THE DISAPPOINTMENT in the stimulus legislation shouldn't obscure the bigger picture.

Six months ago, no one would have predicted that the White House and Congress would agree to spend $800 billion on a range of projects and programs, with the goal of creating or saving 4 million jobs through state intervention in the economy. The political sea change that the stimulus represents--in spite of its inadequacies--prompted Newsweek magazine to declare on its cover: "We are all socialists now."

For all the concessions that Obama and the Democrats made on the stimulus legislation, it still contains provisions that represent a welcome reversal after an era in which politicians complained about the failure of "big government" and relentlessly cut programs benefiting workers and the poor.

For example, the federal government will spend $20 billion more on food stamps over several years. That will mean an extra $63 a month for an average family of three.

The stimulus adds $25 to every weekly unemployment check, extends benefits for the long-term unemployed through 2009, and expands eligibility to certain categories of workers, like part-timers, who are currently excluded.

The legislation spends about $100 billion over two years for public schools, universities and child care centers. Most of that is in the form of a "fiscal stabilization fund" for state governments, which are under restrictions to spend much of the money they receive on education to avert teacher layoffs or modernize school buildings. There's also $17 billion to increase Pell grants for college students, and about $4 billion in new money for Head Start, Early Head Start and other pre-kindergarten programs.

But for each of these measures that will be a tangible help for working people, there's something that was traded off during negotiations with the Republicans--or wasn't even proposed in the first place.

Thus, on education, the final version of the legislation cut $16 billion from badly needed school construction.

Faced with opposition from Republicans and business groups, the Democrats gave up on proposals to open up the Medicaid program to the unemployed, and to allow older workers who lose their jobs to keep their employer-based coverage until they qualify for Medicare.

One of the biggest holes in the final bill is money for state governments facing budget deficits. If the states close their shortfalls through layoffs and spending cuts, they'll be counteracting the federal stimulus.

Yet the federal legislation allocates $35 billion less to the states than was initially proposed. All told, the money earmarked to help state governments with education, Medicaid and infrastructure projects would cover less than half of the total state government budget deficits through 2010, according to the Center on Budget and Policy Priorities.

Even worse is what got put in the stimulus legislation instead. Tax cuts for individuals and businesses account for roughly $282 billion of the stimulus law, about 35 percent of the total.

Unlike the Bush administration's giveaways to the super-rich, these tax cuts are largely aimed at helping working people. The problem, though, is they won't help all that much.

The main tax credit comes from reductions in payroll taxes deducted from every paycheck. Individuals earning up to $75,000 a year will qualify for a $400 credit; couples earning up to $150,000 annually will get $800. But this will only add about $13 a week to paychecks starting in June, falling to about $8 a week next January.

The stimulus bill also wastes nearly $70 billion on an extension of the alternative minimum tax--a Republican priority that Congress would have taken up anyway later this year, according to lawmakers. "Telling people you're not going to impose a tax increase on them they weren't expecting in the first place is not stimulus," said Nigel Gault, an economist with Global Insight.

Then there's a vast array of business tax breaks. These illustrate best of all the reason why many economists opposed bulking up the stimulus bill with tax credits. Businesses that are already cutting jobs and avoiding new investment because they're pessimistic about the economic outlook aren't likely to change course because of the money they don't pay to the government.

Meanwhile, the part of the stimulus bill that will most reliably translate into jobs--infrastructure and public works projects--was whittled down to around $150 billion, less than a fifth of the total.

According to liberal Democratic Rep. Peter DeFazio--who voted against the final stimulus legislation because of the concessions made by the White House--every $1 billion spent on infrastructure creates 34,779 jobs and $6.2 billion in economic activity. That might be an overstatement, but not by much--most economists agree that spending on infrastructure produces far more stimulus bang for the buck.

But the legislation Obama signed comes up short on this score. For example, state governments will get about $27 billion to build and repair roads and bridges. That's less than half of the $64 billion in projects the states say are ready to go, according to the American Association of State Highway and Transportation Officials.

The bill contains $8 billion for developing a high-speed rail system, but only slightly more for mass transit, where the need for more money is immediate and urgent.

And the total of more than $100 billion allocated to public works projects still pales beside the $2.2 trillion that the American Society of Civil Engineers estimates is needed to fix infrastructure nationally.

Several controversial "Buy American" provisions--for example, requiring that only U.S. iron, steel and other manufactured goods be used for infrastructure projects--remained in the stimulus legislation, though with conditions attached. And lawmakers added an anti-immigrant measure limiting when banks that accept U.S. government bailout funds can hire skilled foreign workers under the H-1B visa program.

But a provision that would have required every employer that got stimulus money to use the federal government's error-prone E-verify system to check on the immigration status of employees was stripped out.

SO WHY does the stimulus legislation contain so many half-measures? After all, Obama's inauguration four weeks ago was celebrated by huge numbers of people, and his popularity remains high.

For one thing, the Republicans presented a virtually united front against the stimulus bill, and the mainstream media reported their every slander of the proposal without hesitation. "One might have expected Republicans to act at least slightly chastened in these early days of the Obama administration, given both their drubbing in the last two elections and the economic debacle of the past eight years," wrote columnist Paul Krugman.

But no. The GOP trotted out every tired complaint about "big government" and wasteful spending--this from a party that ran up a staggering government debt over eight years of George W. Bush, thanks to the astronomical sums wasted on the Pentagon war machine.

Still, the Republicans shouldn't have been able to gain the upper hand in this debate. They did because of the new Obama administration's insistence on cooperating with the GOP in the spirit of "bipartisanship."

For at least the first several weeks after Obama's inauguration, while the White House was talking about how much it valued their input, the Republicans were able to define the stimulus legislation on their terms. That meant depicting it as stuffed with "waste" and "political pork" to reward Democratic "interest groups"--rather than a collection of measures that could create jobs and bolster working people's living standards.

Obama finally began to push back--for example, at a nationally televised press conference February 9, where he easily dismantled the Republicans' objections to the stimulus. But it was too late to stop a handful of moderate Republicans in the Senate from holding the entire bill hostage.

Having failed to build pressure on the Republicans with a public campaign for a more ambitious proposal, the administration needed the votes of Sens. Susan Collins, Olympia Snowe and Arlen Specter to prevent the stimulus bill from getting bogged down.

Collins, Snowe and Specter got pretty much anything they wanted. "There are three Republicans in the Senate who are writing this policy," Rep. DeFazio told the Nation's John Nichols. "They're more powerful than the president of the United States and the Congress combined."

The administration's timidity might seem like just a tactical error. But in reality, Obama's determination to appeal to "bipartisanship" illustrates how mainstream and conventional his political beliefs really are--in contrast to his rhetoric about hope and change.

In reality, the stimulus bill that Obama signed into law is little different from the broad outlines of the package his administration was promoting at the beginning of the process. Thus, the proposal to devote one-third of the total stimulus to tax cuts didn't come from Republicans first, but from the new president.

Though it finally shifted to offense against the Republicans last week, the Obama administration continued to disappoint those who wanted it to take a tougher line.

Thus, of all the provisions in the stimulus package that the White House could have complained about as Obama prepared to sign the legislation, Press Secretary Robert Gibbs chose...a measure inserted into the bill that would impose tougher restrictions on executive pay and bonuses at banks that participate in the federal government's bailout of Wall Street.

Some media commentators claimed that Obama had let his one and only chance to pass major economic legislation slip away. That's wrong. If the economy continues to deteriorate--and it will--the administration will be back with more stimulus legislation in various forms. Corporate America will demand it.

And economic forces are building that will require more action, sooner rather than later. Thus, the fast-deteriorating situation of U.S. banks--the main factor in another stock market dive on the same day Obama signed the stimulus--will require more aggressive measures than Treasury Secretary Tim Geithner proposed last week.

The real question isn't if there will be more proposals to deal with the economic crisis, but what they will be. If the Washington establishment is left to itself, they will be as disappointing as Obama's stimulus. But anger with the impact of the crisis is growing with every passing day. That anger is the basis for a fight that can take root outside Washington--and make its demands felt inside.

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