Economy -- The Case For Urgent Action

January 8, 2009

by Faiz Shakir, Amanda Terkel, Satyam Khanna, Matt Corley, Benjamin Armbruster, Ali Frick, Ryan Powers, and Pat Garofalo

ECONOMY

The Case For Urgent Action

Today, President-elect Obama delivered a speech at George Mason University in order to "make the case for urgent action on an American Recovery and Reinvestment Plan," an economic stimulus package that could amount to $775 billion in government spending and tax cuts. "I don't believe it's too late to change course, but it will be if we don't take dramatic action as soon as possible," said Obama. "If nothing is done, this recession could linger for years. The unemployment rate could reach double digits. Our economy could fall $1 trillion short of its full capacity, which translates into more than $12,000 in lost income for a family of four." An economic recovery package is undoubtedly necessary, as reports indicate that the U.S. private sector shed almost 700,000 jobs last month alone. Former secretary of labor Robert Reich predicted that without a stimulus package, 3 million jobs will be lost in 2009, and "unemployment will rise to 10 percent." The rescue package must be large enough to ensure that America avoids the "nightmare scenario" of Nobel Prize-winning economist Paul Krugman: the "economy plunges for most of 2009, and when the plan finally starts to kick in, it's only enough to slow the descent, not stop it." However, as the Center For American Progress' Will Straw also explained, "It must help those most affected [by the economic crisis] and build our future economic strength while achieving fiscal responsibility. There can be no place for special interests or ideological proposals."

THE MOST 'BANG' COMES FROM SPENDING: While quickly passing the stimulus bill is an absolute must, stimulus dollars need to be targeted toward those areas in which they will promote the most economic activity, and not be wasted on corporate handouts. As Yves Smith explained at Naked Capitalism, "stimulus programs of various sorts are meant to compensate for a falloff in demand." Thus, the best forms of stimulus are those that start moving through the economy right away. According to an analysis by Moody's Economy.com, the most fiscal stimulus "bang for the buck" comes from various forms of government spending, including infrastructure investment, aiding state and local governments, and securing the social safety net through increased Food Stamps and extending unemployment benefits. For every dollar the government invests in infrastructure, real GDP changes by $1.59, while a dollar invested in state aid changes GDP by $1.36. And as Krugman noted, "public investment leaves something of value behind when the stimulus is over." Stimulus of this sort can help kickstart the economy, while putting the country on a track toward long term recovery and growth.

THE RIGHT KIND OF TAX CUT: There are, however, limits to how much can be spent on infrastructure, state aid, and other initiatives, and therefore, some tax cuts should be part of the rescue package. But the danger with using tax cuts as stimulus is that the money may be saved instead of spent, thus diminishing the return. So, as the Center for American Progress Action Fund's Matthew Yglesias noted, if tax cuts are included, the idea "is to put money in the hands of individuals with a high propensity to spend the money -- thus giving businesses more customers and creating labor market demand so that unemployed people can find jobs." Obama is reportedly looking at making 40 percent of his package tax cuts, some of which are in this vein. His "Making Work Pay" proposal, which would give working individuals a $500 credit and families a $1000 credit -- in the process helping about 150 million Americans making less than $200,000 -- is one. Another is lowering the income threshold for the Child Tax Credit, which "would grant an estimated 5.5 million poor children access to the credit for the first time, and expand the tax benefit for millions more poor children who currently qualify for only a partial credit." These are the people most likely to immediately spend the money, and as Straw explained, "[I]f this money is spent, rather than being saved or used to bring down debts, then it will certainly have a stimulative effect."

THE WRONG KIND OF TAX CUT: There are, however, tax cuts that would be significantly less effective as stimulus, and Obama is reportedly considering such cuts in an effort to entice conservatives into supporting the rescue plan. One reported proposal "would provide businesses with billions of dollars in refunds" by enabling companies who posted a loss last year "to get refunds for taxes paid as far back as five years earlier." Krugman called this tax cut "a lump-sum transfer with no incentive effects," while Dean Baker, Co-Director of the Center for Economic and Policy Research, told The New Republic that the cut "is simply a give-away to the financial industry and homebuilders. ... This tax cut has nothing to do with stimulus." Baker also pointed out that "really big losers, like Robert Rubin's Citigroup, and other badly failing financial institutions, are losing much more money in 2008 and 2009 than they earned in 2006 and 2007" and stand to reap huge benefits from the cut. Another reported proposal, extending bonus depreciation, would allow business "to write-off the cost of equipment faster." As Howard Gleckman wrote for the Tax Policy Center, "Bonus depreciation in its many incarnations has been tried a half-dozen times over the past four decades and its benefits are, shall we say, hard to find." Conservative organizations like the Club for Growth and the Chamber of Commerce have both put forth stimulus plans with tax cuts that are far worse -- such as cutting corporate income taxes or cutting the corporate capital gains tax -- but the business tax breaks being proposed still amount to "lots of buck, [with] not much bang," noted the Tax Policy Center.

ETHICS -- ARMY SENDS 7,000 LETTERS TO FAMILIES OF DEAD SOLDIERS ADDRESSED TO 'JOHN DOE': The Army apologized this week after sending approximately 7,000 letters to family members of soldiers killed in Iraq or Afghanistan that were mistakenly addressed to "John Doe." The military sent the letters last month in regards to private organizations "that offer gifts, programs and other assistance to families that have lost" soldiers. As a result, Army Chief of Staff Gen. George Casey is now sending a personal letter to all the families who received the improperly addressed letters. The Army says the mistake was caused by a printing error from a contractor, and it only became aware of the "glitch" when several families began contacting the service in recent days. "The indication that anyone would perceive that a hero is not significant, that they would not direct this personally to them, is shattering," remarked Merrilee Carlson, whose son died in Iraq.

HEALTH CARE -- MISSISSIPPI, HOTBED OF ABSTINENCE EDUCATION, NOW POSTS HIGHEST TEEN PREGNANCY RATE: The Centers for Disease Control released a new report yesterday finding that Mississippi "now has the nation's highest teen pregnancy rate, displacing Texas and New Mexico for that lamentable title." According to the report, in 2006, Mississippi's teen pregnancy rate was over 60 percent higher than the national average and increased 13 percent since the previous year. The report offers no explanation for the increase, but as the Sexuality Information and Education Center explains, Mississippi focuses heavily on abstinence education and teachers are prohibited from demonstrating how to use contraceptives. In fact, a local ABC affiliate reported that the state's Human Services Department "says abstinence is the only birth control that is 100 percent effective. And that’s the only message teens need to hear." Not only have numerous studies shown that abstinence-only education is not effective, a review by the House Oversight Committee found that "80% of the abstinence-only curricula…contain false, misleading, or distorted information about reproductive health."

ECONOMY -- CHAMBER OF COMMERCE STIMULUS PLAN: CUT CORPORATE TAX RATES, ELIMINATE UNIONS: Yesterday, the pro-industry Chamber of Commerce issued its State of American Business 2009 report. It called for a stimulus plan to be enacted "immediately." However, its stimulus proposal is essentially a pro-big business, anti-worker grab bag. The Chamber's main proposals include cutting corporate income taxes, slashing the corporate capital gains tax, and defeating the Employee Free Choice Act (EFCA), which would make it easier for workers to unionize. Cutting corporate taxes is one of the least effective economic stimulus measures; the Tax Policy Center's Robertson Williams opined that "businesses are just trying to profit from the government rescue." Fearmongering on EFCA is one of the Chamber's favorite pastimes -- calling it a "firestorm bordering on Armageddon." It has already spent millions to defeat it. Though unionization is not a form of stimulus, the Wonk Room's Pat Garofalo points out that after a stimulus has been passed, "there needs to be a mechanism in place to ensure longer-term recovery and growth," which unionization helps create by fostering "a competitive, high-wage, high-productivity economic strategy."

Anti-American Iraqi Shi'ite cleric Muqtada al-Sadr yesterday called for "revenge operations" against U.S. forces to protest Israel's offensive in Gaza. Sadr also "urged that Palestinian flags be raised on mosques, churches and other buildings in Iraq and that all countries shut down Israel's embassies."

Three rockets fired from Lebanon into Northern Israel today "raised concern that they could presage a second front in the conflict that would complicate peace efforts." The Israeli military, however, dismissed the rockets as "a minor event" while Israeli negotiators arrived in Cairo, Egypt to begin cease-fire negotiations.

In a speech set to be delivered today at George Mason University, President-elect Obama says that the nation's recession could "linger for years" unless Congress acts to pass a new $800 billion stimulus package. Obama adds that a "bad situation could become dramatically worse," warning of double-digit unemployment and a loss of $1 trillion in economic activity.

A new poll commissioned by the AFL-CIO finds that "73 percent of adults said that they supported the Employee Free Choice Act when read the union's descriptions of the bill's three main provisions." Seventy-eight percent said that they favored legislation to “make it easier for workers to bargain with their employers for better wages, benefits and working conditions."

President-elect Obama is prepared to scrap Bush's homeland security office and appoint longtime CIA official John Brennan head of a counter-terrorism unit to be folded into the National Security Council. Brennan would not require Senate confirmation. "The idea of merging the two councils has been recommended by a number of reports, most notably in November by the Center for American Progress Action Fund and by Third Way."

President-elect Obama has selected Cass Sunstein as administrator of the Office of Information and Regulatory Affairs, according to a transition official. Sunstein, a constitutional scholar at Harvard Law School, will "oversee reform of regulations, seeking to find smarter approaches and better results in the areas of health, environment and other domestic areas."

The House passed a measure yesterday that would require future donations to presidential libraries to be publicly disclosed. The House also passed legislation that would make it more difficult for presidents to restrict access to certain documents.

In yet another 11th hour regulation, the Interior Department today "is publishing a rule that would lift a 79-year-old executive order prohibiting oil shale development in Wyoming and Utah." Oil giant Shell had "pressed" Interior to issue the rule.

In a Republican conference meeting yesterday, Sen. John McCain (R-AZ) discussed the "devastating loss of Hispanic voters and how that arose on the rhetoric on immigration," according to a Senate Republican who attended the meeting. The need to reach out to Hispanics "was discussed big time," Sen. John Ensign (R-NV) said. "We have to reach out to Hispanics. We need to go on Hispanic media much more."

And finally: Yes, Pecan! That's the name of Ben & Jerry has given their butter pecan ice cream in support of President-elect Obama. The Ben & Jerry's website calls the flavor "an inspirational blend" of "amber waves of buttery ice cream with roasted non-partisan pecans."

The House has decided to make its official language gender neutral, recognizing the growing representation of women in Congress. Gone are references to "he," "chairman," and phrases such as "his duties."

THINK PROGRESS: Sen. Chuck Grassley (R-IA): Eric Holder's associations with Gov. Rod Blagojevich are unacceptable, but Illinois Senate appointee Roland Burris's is fine.

WONK ROOM: Al Qaeda propaganda: to be believed only when it supports a conservative narrative.

YGLESIAS: The Heritage Foundation suggests that the country needs more Bushisms.

THE PLANK: A look at potential surgeon general Sanjay Gupta's relationship to pharmaceutical companies.

VIRGINIA: Gov. Tim Kaine (D) pushes legislation for in-person, early voting.

ILLINOIS: State House committee might decide as soon as Thursday whether to recommend the impeachment of Gov. Rod Blagojevich (D).

MASSACHUSETTS: The state Department of Mental Health lays off "nearly one quarter of the case managers who supervise people with severe mental illness."

"The race in Minnesota is not over. ... The way you get sworn in and the way you get seated is to show up with an election certificate. And that is determined under Minnesota law."
-- Senate Minority Leader Mitch McConnell (R-KY), 1/5/09, pushing Minnesota Republican Norm Coleman to fight the results of the U.S. Senate race

VERSUS

"We've had a count, we've had a recount, we've had a recount of the recount. It's been three weeks since the election and it's time for Gore to be a statesman and give it up."
-- McConnell, Lexington Herald-Leader, 11/27/00, urging Al Gore to concede to George W. Bush

Think Progress

The Case For Urgent Action

Blogroll