(Also known as: A Stimulus for Tomorrow, Part 10)
Call it the the stimulus that dare not be named. Bloomberg reports that the Obama administration is considering "a mix of spending programs and tax cuts to respond to widening job losses that would amount to an additional economic stimulus without carrying that label."
On the table: A boost in transportation spending, extension of unemployment benefits, and a continuation of the first time homebuyer tax credit. The New York Times adds in a possible $3000 tax credit to businesses for new hires, and a proposal to "allow more businesses to deduct their net operating losses going back five years instead of the usual two."
Some folks will claim that a second stimulus is needed because the recession has been much worse than anyone had predicted. We have a technical term for this view: bullshit. It is absolutely true that the Obama Administration misjudged the depth of the current recession, and Geoff at Innocent Bystanders has the (updated) chart to prove it. But a lot of folks outside the Administration were warning that the Democrats' stimulus plan didn't treat the recession seriously; instead, it was full of crappy half-measures, programs of dubious benefit (ahem, cash for clunkers), and payoffs to various Democratic interests. And, then, moderate Senate Republicans somehow, against almost all odds, made the Democratic plan worse. Under these circumstances, a bunch of folks thought that a son of stimulus was practically guarateed. To choose a random example: me, circa February, 2009:
The current stimulus package is too small on the front end and too bloated and unfocused on the back end. It wasn't a stimulus bill so much as a grab bag of goodies. Of course we can't rule out another stimulus package, because we didn't do a proper stimulus package the first time.
President Obama's second take at a stimulus package also doesn't fill me with the warm fuzzies. The trial balloon for stimulus number 2 consists of more complicated tweaks to the tax system and more transportation spending. This new plan is still too unfocused. For instance -- in the same vein as "cash for clunkers" -- giving limited tax credits for new hires could very well have counterproductive effects (why hire now if the government might pass a tax credit tomorrow? do tax credits encourage employers to dump older, high-wage workers for new hires?) These types of tweaks also impose high compliance costs. And how many new roads does a "green" economy need, anyhow? (Or is this going to be a version of Rep. Mica's high-speed rail plan?)
Let's get serious. The best way to create new jobs (and keep the jobs that exist) is a payroll tax cut. It's a proposal that has been on the table from the beginning. If you cut the payroll tax on both the employer and employee sides, you provide employers with an incentive to both keep and hire workers (because the tax consequences of hiring and retaining workers are smaller) and you provide workers with more money to spend or save (either of which is helpful behavior in light of the dual consumption/credit crunch).
Yes, even a temporary payroll tax cut is costly. But what new program offered by the Obama Administration hasn't been costly? Let's get it right this time.