- The Washington Times - Thursday, October 24, 2002

House and Senate Democratic leaders are proposing a $200 billion economic stimulus plan, an election-timed idea that is straight out of the New Deal days of the Great Depression.

Surely, nothing better demonstrates that Democrats are clueless about how to stimulate economic growth. This is a plan that will spend billions of tax dollars, almost all of it from Social Security revenues, on a variety of dubious schemes they believe will spur stronger economic growth and new employment.

While the plan calls for increased aid to the states to create more government jobs at the state and local level, it would create no private-sector jobs on which a strong and healthy economy rests. Maybe that is why House Democratic Leader Dick Gephardt called his plan a "pump-priming" program a liberal term used to describe Franklin Delano Roosevelt's economic policies. Roosevelt's work projects created a lot of temporary public-sector employment, but few permanent, full-time, private-sector jobs.

The antiquated idea of the government taking money out of the economy through taxes, only to put some of it back into the economy to boost growth, has long been discredited. It does not inject any new capital investment into the economy's bloodstream. The money almost always gets into the spending pipeline too late. And it usually goes to the wrong places.

This is why the five-point plan, hastily concocted by Mr. Gephardt and Senate Democratic Leader Tom Daschle has come under withering criticism here since they were unveiled last week.

Listen to Robert Reischauer who headed the Congressional Budget Office and now is president of the liberal Urban Institute: "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. The overall macroeconomic impact would be quite modest."

"The general consensus now [among economists] is that discretionary fiscal stimulus is ineffective because it almost invariably comes too late," he added.

The Gephardt and Daschle stimulus plan is really a social welfare, entitlement expansion plan. Among its provisions: Extend unemployment insurance benefits, raise the minimum wage by $1.60 an hour, expand federal aid to the states, health-care benefits for the unemployed, and new spending on state and local "infrastructure" facilities that smacks of another public works program.

Officials at the U.S. Chamber of Commerce and other business associations were extremely unhappy with the Democrats' proposal.

"I don't think the plans do much at all. There is not enough there on the simulative side of the ledger for consumers or businesses," said Bruce Josten, the Chamber's vice president for government relations.

"I can't imagine that any sector of the economy would think that these proposals would be simulative in the kind of economic situation we're in today. I mean, imposing a $1.60-an-hour minimum-wage increase on industries that are laying off thousands of workers, like the hotel business, isn't helpful," Mr. Josten said.

Dirk Van Dongen, president of the National Association off Wholesalers and Distributors, was even more incensed with the Democratic plan: "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."

A small part of the Gephardt-Daschle plans would enact a one-time tax rebate for lower-income to middle-income families, most of whom do not pay any income taxes, and there is a tiny tax credit to encourage new business investments.

But economists who studied the plan said there was not enough in the way of any further tax cut stimulus to do much good. "The tax cuts are a little bit nebulous," said Eric Engen, an economist at the American Enterprise Institute.

"The plan has some negative things for jobs and growth," he told me. A higher minimum wage when small businesses are struggling to recover from the economic slump will force payroll cutbacks to reduce costs. Extended unemployment benefits keep workers out of the job market that much longer.

This is an economy that by any measure is overtaxed. The best way to spur economic growth is to lower the marginal tax rates to encourage people to work more and save more. If we want to help businesses grow and create more jobs, cut the corporate tax rate. If we want to encourage new business investment (and boost stock market values), slash the capital gains tax rate or, better, end the double taxation on income and investment gains.

President Bush's tax cuts are good as far as they go, but even his economic advisers now concede that the 10-year implementation period is way too long. The White House is sending signals it may want to accelerate some of the tax cuts if it wins back the Senate next year. A great idea.

Meantime, Mr. Gephardt and Mr. Daschle's dreadful plan should be dismissed outright. This is a nostalgic, New Deal-era revival pitch to energize the Democrats' liberal political base, not a serious proposal to put people back to work.

Donald Lambro, chief correspondent for The Washington Times, is a nationally syndicated columnist.

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