www.timesleader.com News Sports Weather Obituaries Features Business People Opinion Video Contact Us Classifieds

Make sure costly stimulus package is done right

WHETHER WE NEED it or not, the federal government seems ready to give us a stimulus package — an ultra-expensive shot of economic adrenaline designed to get the drowsy economy up and moving again.

President George W. Bush on Friday laid out the framework of a plan that could add up to $150 billion to our national debt. Federal Reserve chief Ben Bernanke endorsed the basic concept, and Democratic leaders in Congress are giddy at the prospect of mailing fat checks to their constituents in an election year.

All of this is designed to avoid a recession — which generally is defined as the economy shrinking for six consecutive months. It’s still not certain that a recession is coming. Bernanke, for one, thinks the nation will avoid it. But at the very least, we’re probably in for a year of very slow growth with rising unemployment.

It may well be that the Federal Reserve, by cutting short-term interest rates, could shake the economy out of the doldrums without a budget-busting stimulus package. But Bush and Congress seem determined to have a stimulus package, so they better get it right.

The Fed is making it cheaper to borrow, and that’s supposed to get Americans borrowing and spending again. But people won’t borrow and spend if they’re afraid of the future. That’s where a stimulus package comes in. Properly done, such a package puts cash into people’s hands so that they can spend it and give business a boost.

For that to work, the government must give money to people who will spend it quickly. The simplest way is to send lower and middle-income citizens a check. They’re the folks living paycheck to paycheck. They’ll spend the money. Wealthier citizens are more likely to put it in the bank, which negates the effect.

A large hike in unemployment benefits also would do the trick, since the jobless will spend every penny. Ditto with a hike in food stamps or welfare payments.

In the 2001 recession, the government sent Americans advances on their anticipated tax refunds. The impact was blunted because the program excluded the working poor — the very people most likely to spend the money. That’s because the checks were based on income tax liability, and the working poor often pay no income taxes.

Early indications are that Bush might want to repeat that mistake. Congressional sources are forecasting rebates in the $800 to $1,600 range.

The president also is leaning toward tax incentives to stimulate business investment in new plants and equipment. Incentives would help, but not as much as the rebate checks. Businesses don’t build new plants because of tax breaks; they build because they need new plants. The best way to create that need is to get people buying a business’ products. That gets us back to the rebate checks.

Still, business incentives could swing some close decisions, leading to more business investment, and that’s good.

The administration says the need for stimulus is only “temporary,” and that word is important. The 2001 tax cuts were billed, in part, as recession stimulus. But they certainly weren’t temporary, and they plunged the nation into seven years of deficit spending. We’re still not out of that hole, and the new stimulus plan will dig it deeper.

The cost would be $140 billion to $150 billion, tolerable only as a one-time shot in the arm, not a permanent plunge into deeper deficits.

We’re probably in for a year of very slow growth with rising


The Weekender Go Lackawanna Timesleader The Dallas Post Tunkhannock Times Impressions Media The Abington Journal Hazelton Times Five Mountain Times El Mensajero Pittston Sunday Dispatch Creative Circle Media Image Map