“Every economist agrees that the government spending in a recession is essential”

Obviously not, Senator – as a recent economists’ conference in Nevada indicated.  And certainly the Republicans do not agree, as they have been criticizing the bill as the height of pork-barrel spending.  But this brings me to the second point of confusion – how to separate a genuine ideological clash from political maneuvering.  In a previous post, I mentioned some of the qualms that Republican congress members had with the original House bill, many of which I thought were legitimate.  However, as I also noted in that post, the sum of their complaints amounted to a very small percentage of the projected total spending.  So it seemed to me, upon further consideration, that their complaints were more likely a political tactic to undermine the Democrats political advantage.  The Republicans set the tone for the debate, and left the Democrats – including President Obama – scrambling to defend their positions.

How is the party with the clear advantage put on the defensive?   Probably because President Obama was insistent upon “reaching across the aisle” – which while honorable – opened the Democrats up to political attack.  It would seem to me that the skeleton crew of Republicans remaining after the massive Democratic victory in November, are those who are the most ideologically opposed to any Democratic initiative.  After all, Republicans in conservative strongholds were unlikely to lose their seats, meaning that most of the casualties were the more moderate in the party.

Therefore, President Obama would be more reaching across a chasm than an aisle.  And really, bipartisanship for bipartisanship’s sake is absurd.  The Democrats won handily, which signaled an ideological shift amongst the electorate, and left no real need for bipartisanship.  The voters elected to place the future – at least temporarily – in the hands of the Democrats, in the hope that they would at least do things differently than the previous administration.  It’s my opinion anyway, that partisanship is an unavoidable consequence of having parties at all, and I’d just as soon seem them dissolved.

Bipartisanship, in any case, would require a “reaching” from both sides, and in spite of President Obama’s efforts, it is pretty clear that most sitting Republicans had no real intention of doing so.  They are probably still in the process of licking their wounds and attempting to repair their damaged pride – and be damned if they were going to concede any further victory to Democrats in the way of compromise.  That much is obvious in how they used minor flaws in the House bill to criticize the overall initiative.  Furthermore, there is the irony of criticizing spending while advocating for sweeping tax cuts, both of which amount to the same thing – a massive and sustained national debt.  Both spending and reducing taxes bring about similar, if not the same results – and the Republicans’ proposed tax cuts would near triple the Democrats’ projected spending in a few years.

Adding to the confusion is the fact that there are two separate bills – the House version and the Senate version – which while they overlap considerably, will require some serious reconciliation before a final version can reach the President’s desk.  The Senate version, which initially raised the overall tab to more than $900 billion, has since been trimmed down in another attempt at compromise between Democrats and the few remaining moderates amongst the Republicans.   While some of those cuts came from the more extraneous provisions of the bill, a sizeable portion came from the bedrock of the Democratic agenda – most lamentably, funding for education.

So as I said in the beginning, the only thing that’s clear about the stimulus is that nothing is clear.  Hardly anyone can agree – with differences appearing between economists, along party lines, within parties along ideological lines (liberal vs. moderate vs. conservative) and even between the two houses of Congress.  Personal interests taint if not fully steer any motivations for supporting or opposing the legislation – Democrats stuffing it with agenda items, Republicans fighting it to make a political point, and individuals within each party arguing to ensure their own priorities are adequately represented in the final version.  All of this superseding the purpose of the bill  – to stimulate the economy.

With all of this bickering and maneuvering and chaos, how is anyone – most of all the average citizen – to make any sense of this debacle?  Because hardly anyone can agree, and because even economists – the presumed experts on the subject – can only speculate on the outcomes of any stimulus bill, we can only follow in the politicians’ footsteps, and evaluate the merits of the bill through the lens of those issues that are most important.  For those few of us who support ideology before candidates, and try to remove ourselves from partisan bickering, it would seem to be the only option.

1. Five Percent Across the Board Income Tax Cut – This provision would reduce the six federal income tax rates by 5% beginning with 2008, and make the new rates permanent.

If the purpose of an economic stimulus is to provide individuals and families with some relief so that they can more confidently participate in our economy, then a tax cut is clearly a good idea.

2. Increase child tax credit from 1,000 to 5,000 – Under current law, families are eligible for a $1,000 tax credit for each child under the age of 17.  This provision would increase, and make permanent, an increase in the child tax credit to $5,000 beginning in 2008.

I am in favor of anything that provides relief to families with children.  However, I feel that there needs to be some oversight for this kind of thing, to ensure that families are not exploiting this benefit.  I am not certain how it could be implemented, but it needs to be mandatory for families receiving this tax cut to spend a certain percentage of their income only on goods and services that directly benefit the children.  I fear the American tendencies towards excess that would see this money being spent on things that are unnecessary, with no change in the livelihoods of the children.

3. Make the Lower 15% Rate on Capital Gains and Dividends Permanent – Under current law the lower rates (15%) currently in effect expire at the end of 2010, which means that the top capital gains rate will go back to 20% and the top tax rate for dividends will be 39.6%.

I fervently disagree with this provision as it appears to only benefit the wealthy.  If it were amended to benefit only those making beneath a certain income – say $200,000, then perhaps it would be more reasonable.  Although everyone is suffering in these harsh economic times – relatively speaking – the extremely wealthy are still at least very wealthy and will manage even with the capital gains tax increase.

4. Repeal the Alternative Minimum Tax on Individuals  – The AMT was created in 1969 to prevent 155 wealthy taxpayers from using loopholes in the tax code to avoid paying taxes altogether.  Under current law, the tax will hit more than 30 million people in 2009.

Again I disagree, because I am skeptical of completely eliminating something for the sake of the wealthy.  However, after reading about the AMT, pros and cons, I agree with those who think that it needs to be examined and perhaps reformed.  It can’t hurt to take a look and revise it for our current economic needs.

5. Permanently Repeal Required Distributions on Retirement Accounts – Under current law, senior citizens, beginning at the age of 70-and-a-half, are required to make mandatory withdrawals from their IRAs and 401(k)s.

If anyone’s suffering during these times, it’s the elderly.  My job has made me quite aware of the the ridiculously high costs of eldercare, and the insufficiency of medicare and medicaid to cover their expenses.  If this provision will truly provide them with relief, then it is a good thing.  Furthermore, I do not even understand why seniors should be forced to do anything with their money that they do not wish to do.  The reasoning behind the required distributions escapes me.

6. Make All Withdrawals from IRAs Tax- and Penalty-Free During 2009 – As a general matter, the purpose of 401(k)s and IRAs is to incentivize retirement savings. However, individuals who are facing foreclosure or some other financial emergency during the current recession should have penalty-free access to all of their savings.

It is easy to see how this relates to economic stimulus, so I agree with it for the same reason that I agree with the across-the-board tax cut.  While this will do virtually nothing for the lower class, who for the most part do not have IRAs and 401(k)s, it will be worth it for the middle class who have invested well.

7. Increase by 50% the Tax Deduction on Student Loans and the Tax Deduction on Qualified Higher Education Expenses -this would increase by 50% the tax deduction of for interest on student loans and higher education expenses to $3,750 and $6,000 respectively.

As a member of the [lower] middle-class who can personally attest to the crippling burden of student loans, I have to agree with this provision.  I didn’t even know until now that I could claim these deductions at all.  Too bad I’ve already filed for 2009.  In any case, this will most certainly help struggling families, since colleges and universities, regardless of the economic climate, only see fit to raise the cost of education.

8. Full Immediate Expensing – would allow all businesses to immediately expense—or fully
deduct on their tax returns—the costs of assets (including buildings) they purchase for their business in the year that they buy such assets.

I agree with this provision in principle, but only businesses with revenue below a certain amount, so that it cannot be exploited by wealthy and greedy corporations the same was as the  the bank bailout.  Furthermore, it should have a statute of limitations, and be extended only so long as it is necessary for fixing the economy.

9. Significant Reduction in the Top Corporate Income Tax Rate – The bill would immediately cut the top corporate income tax rate from 35% to 25%

Here’s where the Republicans show their hand as pro-corporate.  Still, I can agree for businesses making beneath a certain amount (say $500,000), for the reasons mentioned above, but there must be rigorous oversight to ensure that this is not exploited.  It also should not be permanent.

10. End the Capital Gains Tax on Inflation – Under current law, the capital gains tax is based on the difference in the original purchase price of the asset and the sale price of the asset. However, some of this difference, or “gain,” can be attributed to inflation

I think this needs to be analyzed thoroughly to determine just how much gain can be attributed to inflation, so that this is not just another tax-cut for the wealthy and corporations disguised under a separate pretext.  Unless individuals are taking a major hit (relative to their wealth) as a result of this tax, then I don’t think it needs to be repealed.

11. Simplify the Capital Gains Rate Structure – allow corporations to benefit from the
15% capital gains rate.

Absolutely not, unless accompanied by a strict limitation on employee raises/bonuses, to prevent CEOs and the like from pocketing the extra money or the company from splurging on unnecessary expenses like executive hotel parties.  Did we learn nothing from the unlawful excesses of AIG executives?

12. Make the R and D Tax Credit Permanent – The Research and Development tax credit is currently due to expire at the end of 2009.  Originally enacted as party of President Reagan’s Economic Recovery Tax Act of 1981, it has since been extended on 13 separate occasions without being made permanent. The purpose of this tax provision is to spur research and development in the private sector.

I completely disagree with this provision.  The tax credit should continue to be observed and extended where plausible, to prevent exploitation.  A company could feasibly categorize nearly any expense as “R&D”, and so oversight is required before any tax credits can be given.  Were our current financial burdens not the result of the disgraces of wealthy corporations, then perhaps we could be more lenient, but as things stand now – especially in light of how the bailout was handled – tax credits for companies need to be streamlined and tightly regulated.

There are a few provisions in ERMCRA that I do not understand, and as such I will not comment on them.  Overall, I’d say that the bill is strong for how it proposes to stimulate the economy and provide families with immediate relief, but as with all things Republican, I am skeptical of any provisions that mostly (or only) benefit the wealthy and corporations.  And it seems that much of this bill involves tax cuts for those very groups, only under given a variety of different names.

To be clear, I am not necessarily opposed to tax cuts for the wealthy – which is why I have no problem with the 5% across the board cut. After all, it is only fair.  But those things which only benefit the wealthy, the country – the majority of which are not wealthy – can do without.  The wealthy always have the option of giving tax-deductable donations to charities, which allows them some greater measure of control of where their money goes.  If they are not inclined to give, then neither should the rest of the country be inclined to shoulder their tax cuts.

I am also not necessarily opposed to tax cuts for businesses, especially not small businesses which for in many cases are merely self-employed individuals.  As for the larger corporations, any tax cuts granted to them must come with mandatory oversight – I can’t state that enough – and with the expectation, if not obligation, that they use the money to create new jobs for Americans.

So while ERMCRA has some fine provisions, it is in need of some serious revisions, so that its purpose remains economic stimulus, and not libertarian-style deregulation – which has only proven to broaden the socioeconomic gap between the rich and poor, and completely ignore the middle.  This may all be moot, however, as the Republicans probably lack the support to see this bill pass the House.  Still, one would hope that whatever form the final stimulus package takes, that it takes some of the more useful items of ERMCRA into consideration – in the name of bipartisanship, and for the sake of the economy.

• Category 1: Ridiculous and extraneous
• Category 2: Useful but not directly related to stimulus
• Category 3: Useful and directly related to stimulus

For the items in Category 1, I concede to the Republicans that these provisions are unnecessary, have absolutely nothing to do with stimulus, and should be stricken from the bill.  For those items in Category 2, I simply do not understand why they are being stuffed into a single bill, rather than being proposed at a future date.  They do not relate directly to economic stimulus, and should be saved for a future bill.  For the items in Category 3, I disagree with the Republicans, and think that these provisions should remain in the bill, as they are conducive to economic stimulus.

Category 1

• $246 million tax break for Hollywood movie producers to buy motion picture film
• $650 million for the digital television converter box coupon program
• $88 million for the Coast Guard to design a new polar icebreaker
• $448 million for constructing the Department of Homeland Security headquarters
• $248 million for furniture at the new Homeland Security headquarters
• $150 million for Smithsonian museum facilities
• $75 million for salaries of employees at the FBI
• $88 million for renovating the headquarters of the Public Health Service
• $412 million for CDC buildings and property
• $500 million for building and repairing National Institutes of Health facilities in Bethesda, Maryland
• $75 million to construct a “security training” facility for State Department Security officers when they can be trained at existing facilities of other agencies

Particularly absurd are the provisions for repairing government headquarters and buying furniture.  I am certain that none of these facilities are near being condemned and that they can manage until our economy has recovered.  If you are going to attach additional spending to the stimulus, then the money would be better spent renovating schools, some of which truly are on the verge of being condemned.  Also ridiculous are any funds for the motion picture industry, which is the very representation of excess, or funds for the digital conversion program.  If necessary, put off the digital conversion for a few years.  Either way, no additional money is needed to ensure that people can watch television.  That’s completely asinine.

Category 2

• $600 million to buy hybrid vehicles for federal employees.
• $400 million for the Centers for Disease Control to screen and prevent STDs
• $75 million for “smoking cessation activities”
• $200 million for public computer centers at community colleges
• $6 billion to turn federal buildings into “green” buildings
• $650 million for wildland fire management on forest service lands
• $100 million for reducing the hazard of lead-based paint
• $110 million to the Farm Service Agency to upgrade computer systems
• $200 million in funding for the lease of alternative energy vehicles for use on military installations

Any initiatives towards making our country “greener”, that is, more environmentally sensitive, are important.  However, where they have no direct bearing on economic stimulus, they should be saved for a future bill.  All of these initiatives could be re-introduced as the “Go Green America Act” or something of that sort.  The same with the rest of the provisions in this category – they need to be saved for later rather than slipped in under the false pretext of “economic stimulus”.

Category 3

• $850 million for Amtrak
• $1.2 billion for “youth activities”, including summer job programs
• $500 million for flood reduction projects on the Mississippi River
• $10 million to inspect canals in urban areas
• $25 million for tribal alcohol and substance abuse reduction
• $160 million for “paid volunteers” at the Corporation for National and Community Service (CNCS).
• $1 billion for the 2010 Census, which has a projected cost overrun of $3 billion
• $125 million for the Washington sewer system
• $1.4 billion for rural waste disposal programs

Some of these items, it could be argued, belong in Category 2, but I have reasons for thinking that they belong in the stimulus package.  Any infrastructure project will create new jobs, and given the recent D-rating given to our nation’s infrastructure by the American Society of Civil Engineers, this is something that cannot wait.  We do not want a repeat of what happened with the 35-W bridge in Minnesota.  It’s long been known that Amtrak is on the verge of collapsing, and so I think that funding them is necessary, but only with rigorous oversight, lest we see a repeat of the bank bailout debacle.  Part of that oversight must include a legal obligation for Amtrak to create x amount of new jobs and/or to stave off any planned lay-offs.

The 1.2 billion for youth summer job programs is clearly connected to economic stimulus.  More jobs equals economic growth, especially for young people, who can’t spend their money fast enough.  The CNCS – which encompasses AmeriCorps and Senior Corps – not only provides jobs, but has consistently made a difference in local communities throughout the country.  As for the money to reduce the epidemic alcohol abuse in Native American communities, if these programs actually worked, and changed alcoholics into viable members of the workforce, then that is directly related to economic stimulus.

What’s interesting to note, is that in spite of some of the more ridiculous provisions, all of these items only account for a little more than $17 billion of the proposed $819 billion package.  I know, only $17 billion, right?  That it’s such a small portion really highlights how massive the overall package will be.  This raises the question of how much more waste will be found in the bill in the coming days, and whether or not they will be trimmed before it passes the Senate.  The Republicans have a strong argument here, at least to the extent that it demands that this bill be examined with a microscope before it becomes law.

In my next post, I will take a look at the Economic Recovery and Middle-Class Relief Act, a proposed bill expected to be introduced by Representative Tom Price (R-GA), as an alternative to the ARARA, which has its fair share of merits, but also quite a few questionable items.

The first and most obvious problem I have will the bill is the fact that I can barely read it.  While certianly my command of the English language is enough to understand every individual word of the text, it’s the particular use and order of those words in the bill that create a problem.  And I can’t be alone in this.  I wonder how many Americans even know that they have access to the full text of the bill, and for those who do and have tried to read it, how many fully understand it?

While my political orientation tends to align me with democratic (and/or liberal to progressive) politicians and agendas, I am by nature a skeptic and a cynic.  As such I do not really trust anyone, particularly politicians, who by their nature are deceptive, or at least regularly lie by omission.  This is of not unrelated to the fact that they use legalese – the purpose of which can only be to obfuscate their full intentions.

In spite of any previous ideological alignments, I am wary of the ARARA for at least some of the reasons stated by its primary opposition – the congressional Republicans.  Much of the bill does seem to involve issues that are not directly related to economic stimulus, but rather reflect some of the personal agendas of Democratic politicians.  Although many of these agendas are ones that I agree with – particularly any funding of education reform – I wonder if these initiatives will directly affect improvements to the national economy.  At the same time I wonder why this one bill has been stuffed with so many separate issues, not coincidentally the same issues that congressional Democrats have been pushing for years.

Frankly, the bill might as well be called the Democratic Agenda Act of 2009.  My ambivalence comes from the fact that I support much of this agenda, and that, as I said earlier, I am not clear on how closely related those agendas are to economic stimulus.

And finally, given the difficult language and sheer size of the bill, I have to wonder how many senators and representatives have even read it.  How many only skimmed the act to find the particular portion in which they were interested?  How many didn’t read it at all, but rather relied on word of mouth from a clerk or a colleague to sum it up for them?  How many, out of fear of falling out of step with the party, planned to go along with it in any case?

After the bank bailout of 2008, and the PATRIOT Act years prior, we have seen the consequences of the Congress passing massive bills chock full of agendas and sub-agendas that may or may not be related to their publicly stated purpose.  And they can be disastrous – leading from a complete violation of Constitutional rights on one hand to a blank check for greedy bank officials on the other.

So for now, as I continue to try to read the full text of the ARARA, I remain ambivalent.