ANALYSIS: Long-term budget impact is uncertain

ANALYSIS:

As Barack Obama takes the oath of office Tuesday, he faces an intensifying debate with both supporters and opponents over how, how fast, and how well the federal government can spend $825 billion to spark a national economic recovery - all while keeping the government’s mounting long-term debt in check.

Already, an internal clash has broken out between congressional Democrats and Obama economic advisers over how to implement the tax cuts called for in the plan. The debate centers on whether a one-time tax rebate would spur more spending than small increases in workers’ paychecks as a result of lower income tax withholding. A House Ways and Means Committee official said Friday that the tax cuts “will be done through payroll taxes by lowering employee withholding.”

House Speaker Nancy Pelosi on Sunday pushed Mr. Obama for an immediate repeal of upper-income tax breaks initiated by President Bush. Mr. Obama campaigned against the tax breaks but has signaled since his election that he would be willing to let them expire in 2010.

“I don’t want them to wait two years to expire,” the California Democrat told “Fox News Sunday.”

For their part, Republicans question whether the state, safety-net and infrastructure spending Mr. Obama supports will create many jobs in a nearly $14 trillion economy and are calling, instead, for permanent lower tax rates for people, corporations and small businesses, plus a lower capital gains tax rate to stimulate private investment and boost stock values.

Mr. Obama’s advisers say the huge stimulus spending bill will preserve or create nearly 4 million jobs over the next two years and jump-start the economy. Skeptics contend that such big spending bills have not produced economic growth in the past. Mr. Obama’s own advisers have cautioned that their job-creating estimates could fall far short of the plan’s goals, and analysts say it will take several years for the effects of much of the proposed spending to be felt.

“President-elect Obama claims that spending approximately $800 billion will create 3.67 million new jobs. That comes to $217,000 per job,” said economic and fiscal analyst Brian M. Riedle at the Heritage Foundation in a critical analysis titled “10 Questions About the Economic Stimulus Bill.”

“That doesn’t sound like a very good value, especially with the national average salary around $40,000. Wouldn’t it be cheaper to just mail each of these workers a $40,000 check?” he said.

The forecast on jobs came last week in a memorandum from top Obama economic advisers Christina Romer and Jared Bernstein, who cautioned “that all of the estimates presented in this memo are subject to significant margins of error.”

The House’s massive two-year, $825 billion stimulus package to jump-start the economy, released last week, is actually two different bills in one. The larger piece of the plan is a $550 billion social spending package that includes $318 billion in aid to state and local governments; Medicaid assistance for the poor and low-income Americans; public works projects to repair or rebuild roads, highways, bridges and schools; and $102 billion for safety-net programs from unemployment insurance and food stamps to health care and job training.

The other part of the package contains $275 billion in refundable tax credits for low-to-middle-income workers ($500 for individuals and $1,000 for families) and tax incentives for businesses, though the tax relief portion is $25 billion less than Mr. Obama originally sought.

In a letter to Mr. Obama on Friday, House Republican leaders said taxpayer testimony before the House Republican Working Group on Economic Recovery supported a plan “that provides real tax relief that lessens the burden on our middle-class families and helps small businesses create jobs, without burying future generations under mountains of debt or squandering taxpayers’ hard-earned money.”

One of the major problems with stimulus programs featuring large infrastructure programs is the lengthy time it takes to authorize, approve and get the money into the federal, state and local public spending pipelines to have an early impact in a recession. Originally hoping to have the spending law on the new president’s desk when he arrived at the White House, House Democratic Majority Leader Steny Hoyer said Thursday that Congress now hopes to get the package to Mr. Obama by mid-February.

The House stimulus plan has to run an obstacle course through the committee process before reaching the Senate, where Republicans are planning a lengthy debate. The legislation then will have to go to a conference committee where lawmakers iron out differences between the two bills before it reaches final approval in both houses and is sent to the president.

However, it could take many months before money begins flowing into the economy’s pipeline and even years before its impact is felt, veteran congressional observers said.

“I expect the stimulus bill will clear Congress sometime between mid-February and early March,” said Thomas Mann, a congressional analyst at the Brookings Institution.

“Some parts of the bill will get money out the door very quickly: unemployment benefits, food stamps, transfers to states, payroll tax reductions, if included. Other increases in government procurement will take some months to set in motion. New programs could take a year or longer. That means the impact of the stimulus on the economy will unfold over several years,” Mr. Mann said.

As the debate proceeds, there is increasing bipartisan worry that Mr. Obama’s giant stimulus bill will drive the government so deeply into debt that it will lead to significantly higher taxes in the future, severe cuts in existing government programs or both.

A group of fiscal watchdogs planned to discuss the legislation’s impact at a meeting on Capitol Hill Thursday that included the Committee for a Responsible Federal Budget, the Concord Coalition, the Heritage Foundation and the Democratic Progressive Policy Institute. The task of keeping the long-term budget in check is likely to fall to Mr. Obama, as congressional Democratic majorities will continue the push for new spending.

“You have to link the stimulus bill with longer-term budgetary reform right now,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, at a Howard University symposium Monday. “You really have to meld those two.”

About the Author
Donald Lambro

Donald Lambro

Donald Lambro is the chief political correspondent for The Washington Times, the author of five books and a nationally syndicated columnist. His twice-weekly United Feature Syndicate column appears in newspapers across the country, including The Washington Times. He received the Warren Brookes Award For Excellence In Journalism in 1995 and in that same year was the host and co-writer of ...

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