Economic Stimulus

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Remember the 'Dos and Don'ts' When Crafting Economic Stimulus Package, Taxpayer Group Tells Policymakers

ALEXANDRIA, Va., Jan. 18 /PRNewswire-USNewswire/ -- As Congress and the White House seem to be readying proposals this week to address softening economic indicators, the 362,000-member National Taxpayers Union (NTU) today provided some advice and evidence on what should go into a good stimulus package. "Elected officials who think they can tinker with our complex economic machinery and make it run better should step back and put down their wrenches," NTU Director of Government Affairs Kristina Rasmussen said.

Since its founding in 1969, NTU has warned against the dangers of government "pump-priming" schemes that attempt to manipulate the economy. Instead, NTU has argued, lower taxes and less meddling in markets are likelier to achieve robust income and employment growth. Based on these experiences, Rasmussen offered several "Dos and Don'ts" for economic stimulus policies:

-- DO ensure that tax relief is aimed at people and institutions who
actually have a tax burden; more "refundable" credits or reductions
won't reward or encourage the workers and small businesses who will
keep the economy growing.
-- DO improve our global competitiveness by lowering the corporate income
tax burden. In uncertain times, a permanent reduction in some of the
highest business tax rates in the world would give firms the
confidence to plan for future expansion.
-- DO stimulate lasting growth by extending the lower tax rates for
capital gains and dividends. This year's 0 percent rate for some
Americans will expire in 2009. Tens of millions of small investors
would benefit from making the low rate permanent now.
-- DON'T try to spend our way into prosperity through more government
spending programs (which in turn require higher tax collections to
balance the budget). According to the Joint Economic Committee of
Congress, the cost to the economy of raising $1 in additional taxes
for new federal programs is $1.40 - a losing formula for recovery.
-- DON'T dole out tax "rebate" checks that are short on relief and long
on rhetoric. Rebates didn't cure stagflation woes in the 1970s, and
partially succeeded in 2001 only because they were tied directly to
actual rate reductions.
-- DON'T respond to rising home foreclosures and energy costs with
bailouts or price controls. More government backing for bad mortgage
debt will only increase risky lending, while price controls - such as
those enacted under Nixon - will lead to lines at the pump.

"Less, not more, government intervention will keep America's private sector humming along, and with it the well-being of our citizens," Rasmussen concluded. "Making the 2001 and 2003 tax cuts permanent, reining in excessive spending, and clearing away needless regulations will send the right signals to our economy at just the right time."

NTU is a non-partisan citizen group working for lower taxes and smaller government at all levels. Note: For further information on proper stimulus policies, visit www.ntu.org.

Source: National Taxpayers Union

Web site: http://www.ntu.org/

Response to Administration Comments on Economic Stimulus

The following is a statement by Robert Greenstein, Executive Director, Center on Budget and Policy Priorities:

In outlining its principles for economic stimulus today, the Administration helpfully called for measures that would be temporary and would take effect right away. At the same time, however, the Administration also included several principles that would substantially reduce the effectiveness of a stimulus package. First, the Administration would apparently provide either no tax rebate or only a partial one to more than 65 million low- and moderate-income households, including about 22 million households which do not file income tax returns, such as many seniors on fixed incomes. Second, the President disparaged the idea of including spending measures in a stimulus package even though they can be among the most effective stimulus options available.

Treasury Secretary Paulson said today the tax rebate should go only to people who pay taxes, which could mean the Administration would limit it to those who pay income taxes and exclude those who don't earn enough to owe income tax but pay payroll taxes. The Administration's plan that was disclosed yesterday would do just that. It also would give only a partial rebate to millions of taxpayers who are in the 10 percent tax bracket because their incomes are modest. Families of four with incomes below $41,000 would get nothing or only a partial rebate. These are, however, the very consumers who would spend most of the rebate rather than save it. Federal Reserve Chair Ben Bernanke yesterday noted the importance of covering low- and moderate-income households for this reason.

The President today spoke of using the tax rebate to enable Americans "to help meet their monthly utility bills, cover higher costs at the gas pump, or pay for other basic necessities." Yet the Americans who most need help meeting those expenses, and would quickly spend all or most of the rebate, would be fully or partially left out of the Administration's plan.

The Administration's assumption that tax cuts are inherently more stimulative than spending measures does not withstand scrutiny. Both spending measures and tax cuts can be effective - or ineffective - as stimulus depending on their nature and design. As Nobel laureate Joseph Stiglitz and now-CBO director Peter Orszag have written, "Basic economic analysis indicates that increased government expenditures can indeed be stimulative, and, in fact, are often more effective as stimulus measures than tax cuts."[1] In addition, a new CBO report of January 15 finds the two measures that would have the highest bang-for-the-buck and be the quickest acting are two spending measures: temporary increases in unemployment insurance and food stamp benefits.

Although the Administration calls for substantial tax cuts for business investment, studies found that such measures had modest effects, at best, in the last recession. Whatever their merits, most such measures would drive state budgets deeper into deficit; due to the linkage between federal and state tax codes, they would cause the majority of states to lose tax revenue. Since states must balance their budgets even in recessions, states would have to impose even deeper budget cuts or larger tax increases than would otherwise be needed to bring their budgets back into balance. Yet state budget cuts and tax increases during recessions withdraw demand from the economy, weakening it further. That's the last thing that the federal government should do. (In fact, to address this problem in the last downturn, Congress and the President provided $20 billion in state fiscal relief, which can be an effective stimulus measure.) Unfortunately, that is the direction in which the Administration's principles point, since they omit state fiscal relief while calling for measures that would result in larger state deficits.

End Note:

[1] Peter Orszag and Joseph Stiglitz, "Tax Cuts Are Not Automatically the Best Stimulus: A Response to Glenn Hubbard," Center on Budget and Policy Priorities, November 27, 2001, http://www.cbpp.org/11-27-01tax.htm.

  This statement is posted to:
  http://www.cbpp.org/1-18-08tax-stmt.htm
  http://www.cbpp.org/1-18-08tax-stmt.pdf  2pp.

The Center on Budget and Policy Priorities is a nonprofit, nonpartisan research organization and policy institute that conducts research and analysis on a range of government policies and programs. It is supported primarily by foundation grants.

/PRNewswire-USNewswire - Jan. 18/

Source: Center on Budget and Policy Priorities

Web Site: http://www.cbpp.org/

Pelosi: Democrats Welcome President's Willingness to Work with Congress on Economic Stimulus Package

WASHINGTON, Jan. 18 /PRNewswire-USNewswire/ -- Speaker Nancy Pelosi issued the following statement today in response to the President's remarks at the White House this morning on the economy:

"Democrats welcome President Bush's willingness to work together with Congress to provide urgent relief to the millions of Americans facing economic hardships.

"We have agreed on the need to provide assistance immediately, and Congress will continue to work with the Administration to stimulate the economy in a way that is timely, targeted, and temporary. We must invest our resources in such a way that injects confidence and consumer demand, promotes economic growth, and creates jobs.

"The President has outlined his principles, as have Democrats and Republicans in Congress. Now we will work together on the details of a stimulus package."

Source: Office of the Speaker of the House

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