Economists tell us the recession has ended, but for most taxpayers the economy is simply limping along. So lawmakers are considering a so-called “jobs” bill (likely to the tune of $100 billion) to bring the impacts of economic recovery to Main Street. While quite a bit smaller than the $787 billion stimulus enacted last January, the striking similarities between these bills should lead lawmakers to take stock of lessons learned before sending anything to the president.
The House has already approved a $154 billion package that includes familiar provisions such as extending unemployment benefits, aid to states, and infrastructure investments. President Obama took advantage of his State of the Union address to heartily endorse their effort, and call on the Senate to also pass a bill, saying “I want a jobs bill on my desk without delay.”
Considering the similarities between last year’s bill and this one, it's fair to say the jobs bill is Stimulus 2: The Sequel. With the notable exception of Godfather II, sequels are almost never as good as the original. And in this case the original hasn't even reached the credits. Last year’s stimulus bill included $275 billion for infrastructure investment. As of the end of the October (most recent data ), only $36.7 billion of that money had actually been received by contractors with an additional $122 billion worth of contracts awarded but not yet spent. That’s a lot of stimulus coin still burning a hole in Uncle Sam’s pocket.
But the new jobs bill plans to dedicate tens of billions more to infrastructure investment. Unfortunately, the Congressional Budget Office (CBO) has already told us that “investing in public works projects” (infrastructure) has a long lag time and is not very cost effective as a stimulus.
We recognize Congress wants to expedite the economic recovery and sees increased infrastructure spending as a way to do this. But we already have billions of infrastructure dollars that haven't made their way into the economy. So what is the benefit of piling on more especially when there are much quicker and effective ways Congress can help?
The President has added a new wrinkle into the stimulus mix. He has proposed several tax breaks for small business; eliminating their capital gains tax and providing tax credits for hiring new workers. The problem with these is you have to be making money to have any capital gains, and even amongst the business community there isn’t much enthusiasm to take on the additional liabilities of new workers just to get a $5,000 tax credit.
And to top everything off, you have a bizarre budgetary tactic that lawmakers are touting to pay for this stimulus – tap leftover or repaid funds available in the bank bailout. This budgetary feel good approach is like thinking you’ll weigh less if you lift one foot off the scale. CBO Director Elmendorf said as much this week: “If more is spent through the [bailout], that is just more that’s spent, and more that is borrowed and more that goes on the federal debt.” Yet again, there is no such thing as a free lunch.
The nation is staring down the barrel of a $1.3 trillion budget deficit this year. We have to be extremely careful to target any additional stimulus spending at only those activities that are going to give us significant bang for our buck – like extending unemployment benefits, which are practically the opposite of infrastructure investments. The CBO has said that as a stimulus these payments are very cost-effective and have little lag time before their effects are felt. Sounds like a winner to us.
During the State of the Union, the President said “Let’s try common sense.” Here, here, Mr. President, TCS is for that.