An Economic Stimulus That Actually Works

Representing Wisconsin's 1st Congressional District

January 27, 2009

Image In the past several months, the federal government took action in our economy without precedent and with great haste. This week, the Democratic Majority will rush through Congress another unprecedented intervention: a trillion dollar spending package.

The Majority’s bill (H.R. 1) is expected to come to the House floor this Wednesday. As drafted, this bill is not worthy of our new president’s signature. Despite claims of a new era of bipartisanship, this so-called “stimulus” legislation received no Republican input. The Democratic Majority roundly rejected my good-faith efforts last week to offer improvements to the bill to encourage job creation and economic growth.

I hope – but don’t expect – that we can still make much needed improvements to enact a stimulus bill that actually works. We must arrest the painful job losses in Southern Wisconsin and get our economy back on track, and I fear that H.R. 1 moves us in the wrong direction.

As outlined in previous posts, here is what economic recovery legislation could and should do:

• Immediate Tax Relief: Fast-acting tax policy would boost incentives to expand business operations and create jobs. Specific tax reforms include addressing our job-killing corporate income tax rate – the second highest in the industrialized world – and instilling tax certainty by dropping the Majority’s promise to increase taxes on investment, savings, businesses, families, and workers in 2010.

• Assistance for the Unemployed: Assistance should be directed to those hit hardest by this recession – including families in Southern Wisconsin coping with painful layoffs – by extending unemployment insurance and Trade Adjustment Assistance.

Unfortunately, here is what the Majority’s stimulus legislation looks like:

Wasteful, Special Interest Spending: The Majority’s stimulus bill amounts to little more than a special interest wish list: $600 million for brand new, “green” cars for Federal government employees; $650 million for digital TV coupons; $200 million for sod and beautification of the National Mall; and so on. $54 billion is spent on 19 programs deemed “ineffective” or “results not demonstrated” by the Office of Management and Budget. Only 5% of the spending is on transportation infrastructure, while most of the package amounts to throwing borrowed money at dubious special interest projects.

• Little Impact in the Short-Run: Even if borrowing and spending is the answer to our economic crisis, only a small fraction of the spending in the Majority’s bill will take place in 2009. By the start of fiscal year 2011, roughly half of the spending from this bill will remain unspent. Fast-acting tax policy is far more effective, with evidence demonstrating that marginal rate cuts give you a far larger bang for your buck than government spending.

• Recycled Rebate Checks: Much has been made about the inclusion of tax cuts in H.R. 1. The tax provisions in this bill do not encourage risk-taking; they do not encourage investment and job creation. The bulk of the tax ‘cuts’ are simply rebate checks - $10/week for individuals and $20/week for couples. We tried rebate checks last year, and they simply don’t work.

• Does Very Little to Help Protect and Create Jobs: Only 2.7% of this stimulus package is dedicated to helping businesses keep and create jobs. We need to help small businesses, entrepreneurs and the self-employed survive this recession and give them incentives to expand. 70% of our jobs in America come from small businesses. Yet there are more taxpayer dollars dedicated to arts and culture, car for federal employees, and renovating federal buildings, than to helping small businesses grow. Even if it produces the 3 million jobs -- as claimed by the Obama Administration -- it will cost $275,000 per job. This dwarfs the annual income of the average American or the tax bill he or she pays. They are the ones that will ultimately foot this bill.

• Guarantees Future Tax Hikes: The last thing taxpayers need is a tax increase. The calls for new record spending would only exacerbate our exploding budget deficit, a national debt nearing $11 trillion, and well over $50 trillion of unfunded promises. By adding over $1 trillion dollars to this abysmal fiscal situation, we are guaranteeing tax increases in the near future. To hit a recovering economy with massive tax increases is a recipe for disaster. Worse yet, people’s future expectations of tax hikes on the horizon chills investment today –discouraging firms to grow, discouraging people from hiring, discouraging job creation. Here is what economic recovery legislation can’t do:

• Can’t Spend Our Way Into Prosperity: If – as Washington likes to suggest – higher government spending leads to stronger economic growth, our economy today would be the strongest in our nation’s history. Rather than focus on a short-term pop, policies should emphasize a permanent boost to American competitiveness and long-term recovery.

• No Silver Bullet: Our economic crisis cannot be solved with a single silver-bullet piece of legislation, especially one that is focused on throwing borrowed money at a deeply rooted financial problem. We must heed the lessons from history – both at home and elsewhere – that warn of the dangers of excessive government spending, taxing, and borrowing. These are painful economic times, and the desire for an immediate economic recovery is shared by all – but we have to be realistic about the pitfalls of costly missteps. We should enact a stimulus package that tackles the fear and uncertainty gripping the marketplace, empowers the engines of economic growth, and encourages sustained economic growth and real job creation.

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Paul Ryan