- The Washington Times - Sunday, October 20, 2002

The economic stimulus plans proposed by Democratic leaders have more to do with energizing their party's political base than with spurring growth and jobs, economists and fiscal analysts said yesterday.
The five-point plans presented last week by Senate Majority Leader Tom Daschle and House Minority Leader Richard A. Gephardt called for major increases in government spending to extend unemployment benefits, raise the minimum wage and give money to low income people and to the states to pay for local infrastructure programs and health care benefits.
Mr. Gephardt's plan, which he called "pump-priming" a term used to describe the New Deal's economic programs of the 1930s would cost taxpayers $200 billion. But former government officials and economic analysts questioned whether either of the Democratic leaders' plans would do any good at all.
"My guess would be that the economy would be well on the way to recovery by the time these measures would be enacted into law and implemented. While some are important for equity and social policy reasons, such as extended unemployment benefits, the overall macroeconomic impact would be quite modest," said Robert Reischauer, president of the Urban Institute.
"The general consensus now is that discretionary fiscal stimulus is ineffective because it almost invariably comes too late," said Mr. Reischauer, the former director of the Congressional Budget Office.
Other business officials, economists and fiscal analysts agreed with his assessment, though some went further, saying that there was little economic evidence that such spending increases produce much, if any, new economic growth.
"It will create jobs for the public sector employees' unions who are the folks that underwrite the Democrats' political campaigns, but these plans will not get the economy going," said John Berthoud, president of the National Taxpayers Union.
"These are two politicians who are still proposing the same old stuff, more government spending, which are the prescriptions from an exhausted ideology," Mr. Berthoud said.
Bruce Josten, the U.S. Chamber of Commerce's chief lobbyist, was similarly unimpressed by the Democratic plans. "I don't think the plans do much at all. There is not enough there on the stimulative side of the ledger for consumers or businesses," he said.
"I can't imagine that any sector of the economy would think that these proposals would be stimulative in the kind of economic situation we're in today. I mean, imposing a $1.50-an-hour minimum wage increase on industries that are laying off thousands of workers, like the hotel and motel business, isn't helpful," Mr. Josten said.
Mr. Gephardt's plan is not all spending, however. Some of it contains targeted short-term tax incentives for business investment, plus $75 billion in one-time tax rebates for lower-to-middle-income workers, many of whom pay no income taxes.
While some economists welcomed Mr. Gephardt's modest tax incentives, they questioned whether so small a tax cut could have any effect in a $10 trillion economy.
"As far as the tax cuts that Gephardt proposes, they seem a little bit nebulous. They are not the reductions in the marginal tax rates that help encourage people to work more, save more, or for businesses to hire more workers," said Eric Engen, an economist at the American Enterprise Institute.
"The plan has some negative things for jobs and growth. Some of it is transfer spending to lower-income people. Those are either neutral or in some cases not beneficial at all to the economy," he said.
Even the unemployment benefits extension and minimum wage increase "would actually increase unemployment," he said. Struggling small businesses would be forced to cut payrolls to lower their costs, and extended jobless benefits would keep workers out of the work force for a longer period of time.
Asked what response the Democratic plans prompted in the business community, Dirk Van Dongen, president of the National Association of Wholesalers, said, "Not much. There has been barely a ripple of conversation in the business circles in which I travel. No one has paid any attention to it, to be honest.
"It's half-baked. I don't think it's well thought through. I don't think it's sound economics. It's way too little and way too late for the American people to evaluate," he said.

LOAD COMMENTS ()

 

Click to Read More

Click to Hide