by Randolph T. Holhut
American Reporter Correspondent
January 10, 2009
NOT ALL ECONOMIC STIMULUS IS CREATED EQUAL
DUMMERSTON, Vt. -- President-elect Barack Obama will soon take the reins of government, and with it, the challenge of trying to keep the U.S. economy from sliding into the abyss.
"Economic stimulus" is the buzz-phrase right now, and it's important for the Obama Administration and Congress to ask this question: what forms of stimulus would offer the biggest returns? According to testimony gathered by Congressional committees over the past few months, not all stimulus is created equal.
Conservatives always advocate tax cuts. But what kind of tax cuts? If you would like to make the recent reductions to dividend and capital gains taxes permanent, the rate of return would be 37 cents for every dollar it would cost to do so. Cutting the corporate tax rate or making President Bush's tax cuts permanent? About 30 cents on the dollar would be your rate of return.
But not every tax cut would deliver this low rate of return, particularly if you target working Americans. An across the board tax cut would put $1.02 back into the economy for every dollar spent. Even better would be a payroll tax holiday. A proposal to offset the first $500 in Social Security taxes with a refundable credit would bring $1.29 worth of stimulus for every dollar spent.
Why such a difference between tax cuts for the wealthy and corporations and tax cuts for average Americans? The wealthy have received most of the tax breaks over the past 30 years and have mostly kept the money in their pockets. With so many Americans needing help with rent, food, heat, health care and other necessities, tax breaks for them means money immediately recirculated into the economy.
Sending more financial aid to states to help with their budget shortfalls would also be a big boost to the economy - $1.36 for every dollar spent. Money for public works projects like roads, bridges, railroads, water and sewer systems or high speed Internet would also deliver lots of bang for the buck - $1.59 for every dollar, to be precise.
But the biggest returns would come from two important programs that have been underfunded for years and are experiencing great demand in this recession - unemployment benefits and food stamps. Extending unemployment benefits would offer $1.64 of stimulus for every dollar, while expanding the food stamp program would deliver a return of $1.73 on the dollar.
Putting money into the hands of people who will spend it is sound economic policy, It certainly is much sounder than pumping hundreds of billions of taxpayer dollars into the nation's banks. The money that was supposed to thaw frozen credit markets was instead used to pay dividends to investors, bonuses to executives and to fund mergers and acquisitions of other banks. When you have a situation of banks not wanting to lend money and consumers too afraid to borrow money, no amount of stimulus can change the picture.
By all accounts, the current recession will persist through 2009 and possibly into 2010. This is not an economic crisis that will be easily or quickly resolved. The Obama Administration and Congress will need to act, and act boldly, to not only deal with the immediate problem of unemployment and a growing number of families in poverty, but to also build for the long-term and lay the groundwork for a new economy.
That why we need targeted tax cuts for working Americans, expanded unemployment and food stamp benefits, long-term investments in public infrastructure and direct federal aid to state and local governments - to aid the people who have yet to benefit from any of the Bush Administration's economic remedies of the past year.
Yes, it's going to cost a lot of money. But if, two or three years from now, we've laid the groundwork for the next round of economic expansion - a national health care system, a "green" economy, a better and more fuel-efficient transportation network - it will be money well spent.
Randolph T. Holhut has been a journalist in New England for nearly 30 years. He edited "The George Seldes Reader" (Barricade Books). He can be reached at firstname.lastname@example.org.