Stimulus Logic
editorial

Stimulus Logic


As its name suggests, a stimulus package should stimulate the economy. The best way to do this, years of economic research has shown, is to put money into the hands of consumers, especially those who will quickly spend it. Funding infrastructure projects will also create jobs and leave communi-ties with lasting improvements, such as better roads and schools.

As Congress continues debate on a stimulus package, disagreement about the proportion of spending versus tax cuts in the bill has intensified. Republican leaders have said the package should consist of 40 percent tax cuts, rather than the 20 percent in the bill passed by the House this week. With more tax cuts, less would be spent on infrastructure, unemployment benefits and health care. That would be counterproductive.

To work, a stimulus bill must quickly get money to consumers, thereby increasing demand for goods, boosting companies’ bottom lines and averting more layoffs. Increasing unemployment insurance, raising food stamp benefits and increasing federal support for health care does this. So, too, does federal funding for construction projects because people are put to work and their paychecks make their way through the local economy.

The benefits of tax breaks are less clear. The $819 billion bill passed by the House includes $500 tax breaks for individuals, including those who don’t earn enough to owe federal income taxes, which has angered some Republicans. There are also tax breaks for renewable energy and business in-vestment.

By most accounts the stimulus package passed by Congress early last year, the centerpiece of which was tax rebates of up to $600 per person, helped a little by increasing consumer spending.

Much more help is needed this time.

Getting additional money into the pocketbooks of people who are most likely to spend it — the lower and middle classes — is the most immediate and low-cost way to do this. Getting the money out quickly is also important. In a recent analysis of the full stimulus bill, the Congressional Budget Of-fice found that about 64 percent of the money would be spent by next September.

In a 2003 analysis of stimulus plans, Mark Zandi, chief economist for economy.com, found that extending unemployment benefits has the largest positive effect by generating $1.73 for every dollar of cost. Second was state fiscal relief at $1.24, followed by a one-time uniform tax rebate, which re-turned $1.19 for every dollar of cost. Tax-rate reductions returned only 59 cents, costing more than they generated, largely because lowering tax rates results in the largest financial benefits to those with the highest incomes who are likely to invest or save that money rather than spend it.

Concern over paying for such assistance is valid, although analysis by the Congressional Research Service shows that stimulus investments pay for themselves — over time.

Less clear is how to help homeowners deal with oppressive mortgages and avoid foreclosures, but the Republican idea of a 4 percent interest rate merits a closer look as the Senate considers the bill next week.

To ensure a new package has the best chance at improving the economy, lawmakers should stick to the guiding principles of economic stimulus: that it is timely and targeted.

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Comments
11 comments on this item

If Congress wanted to stimulate the economy, it would cut the payroll tax in half -- quick and easy to do, and you would start seeing results the very next payday.

Unfortunately, Congress isn't interested in the economy. It's interested in stealing money for themselves and their campaign contributors.

We should provide more money (to stimulate the economy?) for honey bees, AIDS prevention, and tax rebates to people who pay no income taxes. Perhaps more tax cheats in government would help too. Oops, we seem to have another in the Daschle weasel. Now Obama wants to cut the defense budget by $55 billion to pay for all this pork. It just keeps getting better. Maybe he's nuttier than Pelosi and Reid.

If this spending would create more jobs, and not spend so much money to help wasteful state programs go a bit longer, it might be a good investment. However, in light of reality and how this will put a HUGE tax burden on our children, grand children and great grand children, we need to call all of our delegates in DC on both sides of the aisle. Please tell them to delay this package until it's fixed so more jobs get created. Their DC offices can be reached at: Senator Snowe: 202-224-5344 & Senator Collins: 202-224-2523 & Switchboard: 202-224-3121. Our country has a major bipartisan economic problem, and we need both sides to stop playing games and work to find a bipartisan solution! They need to hear from us, the people who pay for their salaries & benefits. Have a great Maine day!

As I said yesterday, somewhat, raise the minimum wage to $12.00 Per Hour and then use some of this stimulus money to reimburse small businesses for the difference that they are paying employees now vs. the increase to $12.00. Talk about next payday.......you would see a huge jump start in the economy but only in the stuff that people would buy next week......not the big corporations who own our politicians, but the small businesses that are around the corner that need it the most. To stay in business and keep their employees............think about it....

tcollins: Hmmmm..I am thinking about it and I guess I'm missing your logic. Let's see if I get it. Increase the minimum wage to $12 per hour and then the government gives small businesses money to offset the mandated increase? I still don't get it. Any money the government gets is from tax payers (unless they just print more which is what they are going to have to do and then watch out inflation). So, in short you have tax payers paying more to offset small business increasing the minimum wage and you have poor people making a few more crumbs. I don't think people who make $12 per hour are big spenders or investors. Where is the stimulus??? If you want to help small business, government should stay out of their business. Get rid of minimum wage mandates lower their taxes...think about it.

Sharon: good article! Too bad the likes of most people here won't read it...

My suggestions to help the economy:

1) Stop bailing out the big boys, let them feel the pinch the majority feel. Why bail out banks, so they can buy more banks in different countries? They are financial institutions, and should know how to handle their own resources effectively.. Bailing out the auto industries, so they can send more of our jobs overseas is not practical. I think it is strange that foreign auto makers have put Americans to work here in our country and are not part of the bailout. Even state government needs to be readjusted, with those giving themselves substantial raises and wasting our tax money being called on it. Did Maine really need the decorative "ornament" in Augusta for the sixteen counties during difficult times? What has government officials accomplished to earn such merit raises? A local waste of time and money is the roundabout in Calais. It is not large enough for safet easons, and I expect their will be numerous accidents at that site when the extravagant customs building is in operation. And if this small "bump" in the road was a necessity, why did all those families have o relocate, when their land wasn't even used? Even one of the workers did not know why they had to plant dead flowers in October on Gilligan's Island. Wastefulness does abound in this country, from top to bottom.

2) Instead of wasting any more money, why not distribute it to where it can make a difference. Give each household something they can actually do something with. I am not sure how many household are in the US, but what if each were given a substantial amount, like $200,000 to spend on their needs and wants. I feel it would give a big jump start to the economy. I would bet theire would be a huge increase in demands for automobiles, housing, etc, which in turn would cause more jobs to be created to help meet those demands. With bigger ticket items being sold, the government would start getting the money back immediately through taxes, permits, etc. As work increases in the US, more money would be added to such programs as social security, which will become a phenomenal concern soon as the baby boomers exit the work force, if they can afford to. Banks would be more willing to work with consumers and increase therir cash flow. The insurance companies would see an increase in policies, which would help bail them out. The auto makers would need to step up production and put more Americans back to work. All durable goods would see an increase in demand and factory workers would have to be hired to fulfil the orders. As Americans went back to work, people could start affording such luxuries as their own insurances, put ting food on their own tables, filling their own fuel barrels, which in turn would reduce the need for as much public assistance in both state and federal programs. What a boost this would be to families that really do want to provide for their own. As families became more positive about themselves, this would quickly spresad out into the communities, states, and the entire country. Children would be able to attend college, to promote and protect the future of this country, and universities would appreciate the higher enrollments, along with the educators that see there jobs at risk.

Oh the things that could happen if the everyday person was to be given the opportunity to hope, dream, and work toward a better future. Not just have to worry about which bill to pay, which one to let slide, where will the next meal come from, do we get fuel or food, do we go without that medicine because another need seems to be more demanding? I believe that Americans can and should take the country back from the bottom up. Money dished out at the top does not trickle down too far. Put Americans back to work and the economy can turn around. And while we're at it, penalize those companies that outsource the jobs, and don't allow those products back into the country without drastic measures.Yes, I believe we can do this.

"Getting additional money into the pocketbooks of people who are most likely to spend it — the lower and middle classes — is the most immediate and low-cost way to do this. " I wish that might happen here, except a few Maine, homegrown, local banks, who say they DON"T EVEN NEED IT, are bellying up to the bailout trough too. But free is free? Huh? I wonder if it's for thier bonus program too?

So sad, but I guess our some of our local CEOs mindset are no different than the Wall St crew!

SharonFaith, But I doubt most who post here have the ability to see.

Let me think about this editorial written above: Does this person actually believe that we need to give MORE money to welfare in this state as well as unemployment? I am so tired of those we already support with welfare. Working in the healthcare field, if I hear one more patient tell me how they are not paying for any of their procedure or how they are receiving welfare but still spend $100/wk. on marijuana I will scream! All Obama is trying to do is pass along his spending frenzy he's had planned all along. Expanding unemployment benefits is not the answer: we need to CREATE JOBS so those unfortunately requiring unemployment at this time, very much legitimately, can become EMPLOYED again and those unemployment benefits would then be available to somebody else. We need job creation not more assistance! The writer of this editorial above should make note that even some of her beloved Democratic senators disagree with all the spending this stimulus package includes. Let's get real and call it what it is: a SPENDING package. It is a very good thing for this country that we have Republican senators who ar speaking up for our country!

momto2: Let's hope that our "republican" senators will vote against the spending package. I urge everyone to call their offices and voice your opposition to bigger government. If Obama has his way, before long people will either be dependent on the government (welfare) or they will be working for the government. Privately owned businesses will be a thing of the past.

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