For the first time this year, that word is being heard again in the Senate -- the one echoed all last year in the chamber, as Senate Minority Leader Mitch McConnell (R-KY) believes he may have the votes to filibuster the Senate Finance Committee stimulus package. You heard right. Yes, the $157 billion package that cleared Committee "has become yet another Christmas tree," McConnell says, and he vows to block it.

Complicating matters for the Democrats who need 60 votes to pass it over McConnell's objections is the presidential primary calendar. Democrats may need up to six Republican votes to break a filibuster; with Senators Obama and Clinton otherwise occupied for the time being, they may need up to eight -- probably a bridge too far, for now.

So Majority Leader Harry Reid (D-NV) has scheduled a (cloture) vote to end debate on the Senate's stimulus bill. It's expected to occur late Monday. The plan is to see how many GOP Senators are willing to go along with McConnell in a series of politically difficult votes on adding rebate checks for low-income senior citizens and disabled veterans, food stamps, unemployment benefits, low-income heating, and other Christmas trifles to the House bill. But they won't vote 'til the candidates come home, perhaps after Super Tuesday.

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[The Senate can safely spare several days on the stimulus, by the way: The Center on Budget assures us that so long as Congress enacts the stimulus before mid-March, the rebates will start to go out in mid-May. In fact, the Finance Committee plan would actually would accelerate the effect of the stimulus. Because the plan adds unemployment benefits to the House bill, they would reach unemployed workers 30 days from enactment -- two months before the first rebate checks would go out!]

By a vote of 14-7, the Senate Finance Committee passed its version of a package of a set of measures designed to stave off a possible recession. The bill's $157 billion total is about $10 billion more than a House economic stimulus bill passed last week. The key elements of the Senate bill include:

• An extension of unemployment insurance benefits; depending on a state's unemployment rate, those benefits could continue for up to 13 weeks beyond the current 26 week limit
• A flat $500 tax rebate for individuals and $1000 for couples plus $300 per child
• Rebates are limited to individuals earning less than $150,000 per year and $300,000 for couples
• To qualify for the rebate, workers must have earned $3,000 in 2007. Unlike the House bill, the Senate bill counts Social Security income toward this $3,000 requirement
• About $6 billion in tax breaks for renewable energy production
• It allows businesses to apply losses from up to 5 years prior to 2008 to 2006 and 2007 profits
• A smattering other business tax breaks

As noted below, gross domestic product -- the most basic measure of the nation's economic health -- grew by an anemic 0.6 percent in the fourth quarter of 2007. The expansion for all of 2007 was 2.2 percent, the lowest figure in five years.

The data added impetus to the stimulus package racing through Congress. Heading for the Senate floor now is that chamber's version of the House-passed $145.9 billion package. A Senate bill upped the ante to $157.2 billion; this figure is likely to grow still further when a food stamp provision is added. A Senate vote is expected tomorrow.

Meanwhile, the Federal Reserve cut interest rates today for the second time in just over a week, this time by a half percentage point. That brought the benchmark federal funds rate to 3 percent, a 125-basis point reduction since Jan. 21 -- the most drastic combined cuts in over 25 years.

Despite these moves in Washington, broad U.S. market indices slid today.

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EXTRA CREDIT QUESTION: Will the stimulus package -- assuming that it is passed more or less intact and unpaid-for -- mean that there is a tacit agreement not to impose PAYGO rules this year? Will spending cuts and revenue increases that would lower the deficit be off the table in 2008, on the assumption that such measures would be said to vitiate the effectiveness of the stimulus package?

Yesterday, the U.S. House of Representatives overwhelmingly approved H.R. 5140, the grandly-named Recovery Rebates and Economic Stimulus for the American People Act of 2008 It's the $146 billion economic stimulus package worked out by House and administration negotiators last week.

At the heart of the package is a tax rebate that would provide checks of up to $600 for individuals and $1,200 for families. The rebate would be available to taxpayers earning over $3,000 in wages and would be phased out for individuals earning over $75,000 and families earning over $150,000. It also provides tax credits for businesses totaling roughly $50 billion.

Last week, OMBW issued this statement on the shortcomings of H.R. 5140.

At this writing, the Senate Finance Committee is marking-up a separate stimulus measure, proposed by panel chair Sen. Max Baucus (D-MT), summarized here, subject to amendment during mark-up.

For a comparison of the relative merits of the tax rebate structure in the House and Senate packages and a proposal to combine the best of each at a net savings, see The State of The Stimulus: A Modest Proposal.

With the voluminous debate in Washington about the appropriate contours of a economic stimulus package, it should be mentioned (as it occasionally is) that a recession is not necessarily a lock. It's possible that such a package may not be needed.

That possibility, however, appears to have narrowed significantly, as the Bureau of Economic Analysis has announced that fourth quarter GDP growth for 2007 was a molasses-in-December slow 0.6%. In the third quarter of last year, GDP grew at a brisk 4.9%. For all of 2007, the economy grew at a 2.2% pace. In 2006, GDP growth was 2.9%.

For a more detailed look at the numbers, Dean Baker has a good piece up at CEPR.

Elections are the time when politicians pay the most attention to people and issues, and therefore the best time to ask them questions about how they plan to govern. OMB Watch wants your help in figuring out the best questions on government transparency that can be put to the candidates. Take just a few minutes to answer our survey and vote on your five favorite questions on the issue of government transparency and openness. We will then share the top questions with the news media and other organizations that have direct contact with candidates.

Government openness affects every issue from budget and taxes, to the regulatory process, to non-profit advocacy. The range of questions tries to reflect this breadth so check them and see which are most important to you.

Take the Open Government: What We Need To Know Survey today.

The Senate Finance Chair Max Baucus (D-MT) has now released the economic stimulus proposal that will be considered at Wednesday's Committee mark-up. For details and scores, see here later today. The proposal is along the lines described below, with these three main differences:

--> It now includes an extension of the net operating loss (NOL) carryback for 2006 and 2007 by five years, back to 2001, from the two under current law.

--> The total cost of the Finance package is $156 billion. This includes the UI and rebate or seniors provisions described below as well as the new NOL provision; it does not includes the cost of increased food stamp assistance, since this is outside the Committee's jurisdiction (it is expected to be taken up by Sen. Harkin (D-IA), Chair of the Agriculture Committee).

--> The Baucus package adds only $10 billion in total to the House-Treasury $146 billion price tag. How? It lowers the amount of the per-person tax rebate in the House-Treasury plan from $600 to $500.

The Senate Finance Committee is considering new rules on Wednesday (Jan. 30) to increase transparency of the committee's meetings. While the proposed changes are a welcome step toward openness and transparency, the draft rules contain several serious problems. We need to give the committee quick feedback on these problems and get them fixed before Wednesday's markup.

Most notable are the following three problems:

The rules only require the posting of one of the following meeting records, a transcript, an audio recording or a video recording, even though often more than one of these is produced. OMB Watch recommends that all records of committee meetings be posted online.

The proposed rule would establish a 21 business day deadline for posting meeting records, which translates into more than a calendar month. This is far too long for the public to wait and OMB Watch is recommending a 5 business day deadline be established for most records, with one exception for corrected transcripts.

The draft rules would also allow the committee to delete meeting records after the conclusion of a Congress. Coupled with the poor timeframe provision, this could result in records of committee meetings occurring in the last month of a Congress never seeing the light of day. OMB Watch is recommending permanent archiving of committee records.

Here are the draft rules.

Please join us in urging the committee to correct these problems. Call the Senate Finance Committee at (202) 224-4515 and tell them they to keep moving further in the right direction.

The Senate is expected to add approximately $20 billion in new provisions to the $146 billion stimulus package agreed to last week by House leaders and Treasury. Two of these provisions will probably be added in a Finance Committee mark-up on Wednesday afternoon; another may be added by the Agriculture Committee in the next couple of days. Additional amendments may come when the package comes to the floor before a final vote as soon as Thursday or by the middle of next week.

As of now, the major items likely to be added in the Senate are:

• Unemployment Insurance: increasing unemployment benefits for 13 weeks, and as much as 26 weeks in states where unemployment exceeds six percent (to be added by the Finance Committee)
• Food Stamps: increasing assistance to food stamp recipients by about 10 percent, or $5 billion (also to be added in Finance)
• Rebates for Seniors: broadening eligibility for tax rebates to include 20 million seniors and providing rebates of the same size to all people covered (to be added the Agriculture Committee or by amendment on the floor)

Forbes is also reporting that "senators are considering language that would allow companies reporting a net operating loss to attach that loss to a previous year that was profitable."

The Senate package is still a work in progress, but its basic outlines are becoming clear. By and large, it is a stimulus package not just in name but in probable economic impact. Almost none of it is paid for; that is, almost all of it will add to the deficit.

The following is my response.

Coming back to tenth-grade economics, in which we learn that "economic growth" refers to the change in the value of all goods and services (gross domestic product, or GDP) produced over a given time period in a given set of product and service markets, we can make any number of assertions that activity X will result in an increased value of such production.

Riedl's paper relies on this definition economic growth ("By definition, an economy grows when it produces more goods and services than it did the year before."), but then claims that increased consumer expenditure, prompted by an increase in consumer income enabled by government transfers (i.e. tax rebates), do not, in fact cause the economy to produce more stuff in 2008 than it would have without such rebates. This is wrong (see e.g., CBO Director Peter Orszag, Federal Reserve Board Chairman Ben Bernanke, Harvard Economics professor and former Chairman of the Council of Economic Advisers and President Reagan's chief economic adviser Martin Feldstein, and former Clinton Treasury Secretary Lawrence Summers).

OMB Watch released a statement on today's announced House-Administration proposed stimulus package, calling it "a good start" but noting that it "falls short of its stated goal of adequately stimulating the economy."

However:

It is particularly encouraging to hear Senate Finance Committee Chair Max Baucus' (D-MT) belief that it would be a mistake to exclude unemployment benefits from a stimulus package. Baucus has announced that the Senate Finance Committee will draft its own stimulus bill and hold a mark-up of that bill next week, a move that Senate Majority Leader Harry Reid (D-NV) supports.

Moreover:

The terms of the package announced today are tentative — they reflect only an agreement between House leadership and the White House. There is still time for the improvements described above to be incorporated into the fiscal stimulus package, and we hope that they will be made.

Within the last hour, word has emerged that Congress and the White House have agreed on key terms of a fiscal stimulus package. A story appearing in the electronic version of the Washington Post reports that House Speaker Nancy Pelosi (D-CA) and Republican Leader John Boehner (R-OH) reached agreement in principle in a telephone call Thursday morning.

The tax rebate terms:

• the compromise package is not to include increases in food stamp and unemployment benefits
• it will provide tax rebates of at least $300 for almost everyone earning a paycheck, including low-income earners who make too little to pay income taxes
• families with children would receive an additional $300 per child, subject to an overall cap of perhaps $1,200
• the rebates would be capped, limited to individuals earning $75,000 or less and couples with incomes of $150,000 or less

Taken alone, these provisions would bring the cost of the package down significantly from the $145 billion proposed by the administration and blessed by congressional leaders last week. But a package is said to include tax breaks for businesses including:

• incentives to invest in plants and equipment
• 50 percent bonus depreciation
• a five-year net operating loss carryforward for small businesses
• provisions to allow businesses suffering losses now to reclaim taxes previously paid

totaling about $70 billion, fully half of the package and a much greater portion of it than had been discussed earlier.

Progressive activists and labor unions are likely to object strenuously to the omission of unemployment insurance extensions and increased food stamp assistance. Independent economic analysis indicates that the efficiency of the stimulative impact these two components provide ranks near the top among the various components under consideration for the package:

The Republican War on Children's Health continues($).

The House failed Wednesday to override President Bush's second veto of a children's health insurance bill, again confounding Democrats' plans to expand government-sponsored health coverage to include an additional four million low-income kids.

The override failed 260-152, 15 votes short of the two-thirds majority required. Democrats wound up no closer to enacting their signature health policy proposal than they were in October, when their attempt to override Bush's first veto failed by 13 votes. In fact, Democrats lost ground since they passed the second bill Oct. 25 by 265-142, because three Democrats and two Republicans who supported that bill were absent for Wednesday's vote

Roll call here.

Rep. Jim Marshall (D-GA) was the lone Democratic 'nay' vote.

House Speaker Rep. Nancy Pelosi (D-CA), Senate Majority Leader Sen. Harry Reid (D-NV), and Congressional Republican leadership met with President Bush last night to discuss the broad outlines of an economic stimulus package. Bush came out of the meeting with a "very positive feeling" while Pelosi was "confident" that a bipartisan agreement could be reached.

So, here's what the package is shaping up to be so far - these are the boundaries that will most likely contain the package.

• $145 billion
• the majority of which will be tax breaks
• some unemployment insurance extension
• some food stamp expansion

But here's the most remarkable development of late:

Paulson said Friday that Bush wants "broad-based tax relief for those who are paying taxes."

But Paulson reversed that formulation yesterday, saying in a speech to the U.S. Chamber of Commerce that "the package must reach a large number of citizens." By saying "citizens" instead of "taxpayers," the secretary opened the door to ideas advanced by Democrats to extend the short-term tax relief to those who pay little to no income taxes.

The administration has gone from hinting that extension of 2001-2003 tax cuts should be in a package to saying that even those too poor to pay taxes should see some of the benefit.

From the WaPo story referenced above, it also looks like there could be a bill ready for Bush's signature by mid-February.

The CBO has released its outlook for the budget for 2008 through 2012.

Under an assumption that current laws and policies do not change, CBO projects that the budget deficit will rise to 1.5 percent of gross domestic product (GDP) in 2008 from 1.2 percent in 2007.

CBO: The Budget and Economic Outlook: Fiscal Years 2008 to 2018

Almost overnight, the masters of the universe have converged on a consensus that the U.S. economy is headed for -- or already in -- a recession. U.S. markets were closed yesterday for the Martin Luther King Jr. holiday as major indexes fell 7.2 percent in Frankfurt, 7.4 in Mumbai and 5.5 in London. The Dow dropped 400 points in the first hour of trading today.

This despite the Federal Reserve's announcement at 8:30 this morning that it was lowering the prime rate to 3.5 percent, from 4.25 percent. The move, made on an emergency basis in advance of the scheduled Fed meeting next week, represented the biggest single cut in interest rates in 25 years.

Further, Fed Chair Ben Bernanke has given his blessing to a fiscal policy stimulus package to complement his expansionist monetary policy: "I agree that fiscal action could be helpful in principle, as fiscal and monetary stimulus together may provide broader support for the economy than monetary policy actions alone."

So, apparently, it's all agreed -- this thing is real. Markets, rational and not given to panic or irrational anything, reflect fundamental realities. The Asian contagion of a decade ago proved that; similarly, the link between U.S. subprime mortgage foreclosures and the capital markets in the otherwise booming Chinese and Indian economies is obvious to everyone. No one disputes the Fed's stellar record in forestalling recessions -- the last time the Fed cut rates as drastically as it did today was in August, 1982, when the U.S. was in month 13 of a 16-month long recession.

If nothing else, circumstances have fostered a rare spirit of bipartisan cooperation in Washington, with the White House and Capitol Hill in kumbayesque agreement that time is of the essence." President Bush, worried enough about the impact on his legacy of having a recession named after him to endorse a reasonably progressive redistributive approach to such a package, must think it's real, too. And he can't be wrong, can he?

Bush just finished speaking about a White House stimulus plan in very general terms, the vagueness perhaps reflecting deference to House Speaker Pelosi and Senate Majority Leader Harry Reid's request to hold off on specifics and refrain from "unilaterally detailing his own approach" until a bipartisan plan can be worked out.

There was one surprise in the President's comments, however. "This growth package must be big enough to make a difference in an economy as large and dynamic as ours, which means it should be about 1% of GDP," which translates into a package of up to $150 billion -- significantly higher than the consensus amounts discussed in Congress and among think tanks and economists.

Treasury Secretary Henry Paulson has confirmed that President Bush will outline the principal elements of his economic stimulus later today. Capitol Hill aides involved in crafting a congressional package have described the components of the President's plan, as follows:

• tax rebates of up to $800 for individuals and $1,600 for couples above the 10 percent tax bracket; those in the 10 percent bracket would receive no rebates
• a one-year elimination of the 10 percent bracket; families of four earning between $24,900 and $41,000 would paying no taxes in filing year 2008
• no extension of the 2001 and 2003 tax cuts will be included in the package
• tax breaks for businesses investing in new equipment, increases in food stamps, and higher unemployment benefits were said to be among the additional elements of the plan

Reportedly omitted from the Bush plan would be any increases in aid to state and local governments under pressure to raise taxes or cut spending, given constraints to maintain balanced budgets. It is unclear at this writing whether the tax rebates would be fully refundable or not. There has been no mention of an increase in home energy assistance (via LIHEAP), which has broad support in Congress. Similarly, congressional negotiators are considering limiting rebates to individuals with incomes of $85,000 or less and couples with incomes of $110,000 or less, which would greatly increase the stimulative impact of the cash infusion, by targetting it to those with the greatest propensity to spend.

Today, the Center for American Progress (CAP) proposed a Practical and Progressive Economic Stimulus and Recovery Plan. The plan's preamble includes some hyperbole:

[I]f Washington cannot now take measures to address the short-term weaknesses in the economy, then the first years of the next Administration will be consumed by that challenge—leaving little capacity for progress on health care, the transformation to a low-carbon economy, and creating the conditions for long-term growth and economic opportunity.

But the plan itself is mostly restrained, its main outlines based on what Larry Summers calls his "timely, targeted, temporary" mantra. Still, CAP says, "the heart of any progressive economic recovery plan should be a very significant effort to stem the decline of home values." Query whether any such effort could be implemented in a timely manner. And CAP offers no concrete proposal, saying only, "we must design a mechanism that would rely upon existing market players, the existing mortgage finance delivery systems, and familiar financial market instruments coupled with federal credit enhancement."

The plan endorses targeted tax rebates and a temporary increase in food stamp benefits, but makes no proposal regarding optimal amounts to be provided or eligibility for such assistance. The plan further advocates "raising federal Medicaid matching rates [to] maintain state health spending" but recommends no matching rate or duration. It is similarly silent regarding specifics of the unemployment insurance extension it calls for.

Finally, the CAP plan urges "help [for] consumers with rising energy costs, increase[d] efficiency, and spur[ring] Green Job creation." While LIHEAP assistance would probably have a highly stimulative impact, again, no specifics regarding amounts of assistance are provided. But would "job training programs that include new 'green collar' jobs" and an "increase federal support in 2008 for improving the energy efficiency of residential housing" translate into rapid increases in consumer spending on a par with the expenditures involved?

Without further details or justification, the plan appears offhand to fall short of the requirements of the Summers mantra for a successful stimulus package.

Yesterday, Federal Reserve Chairman Ben Bernanke testified before the House Budget Committee. Without explicitly saying so, his comments indicate that he believes an economic stimulus package that would extend the 2001-2003 Bush tax cuts would be a bad idea.

MarketWatch:

"To be useful, a fiscal stimulus package should be implemented quickly and structured so that its effects on aggregate spending are felt as much as possible within the next 12 months or so," Bernanke said. "Any fiscal package should be efficient... Finally, any program should be explicitly temporary."

...

"Getting money to low- and moderate-income families is good in terms of getting the most bang for the buck..."

Bernanke, who is a Republican appointed by President Bush, said longer-run tax measures could actually hurt the economy. "A fiscal program that increased the structural budget deficit would only make confronting those challenges more difficult..."

The signs are growing that Congress will approach design and enactment of a stimulus package on a bipartisan basis -- a departure from the rancorous debate, veto threats, obstruction, and delay that characterized congressional discourse on almost every tax and budget issue during 2007.

In an indication of the changed dynamics in Congress, House Speaker Nancy Pelosi (D-CA) has made a tacit promise to House Minority Leader John Boehner (R-OH) not to issue a stimulus package legislative proposal unilaterally, but instead to wait until biparisan agreement in principle on the components of such a package has been reached.

An article in today's Los Angeles Times, Parties Suggest They'd Yield for Stimulus Pact reported that Pelosi and Boehner yesterday "emerged from a rare meeting promising to develop legislation that would both provide a boost to the economy and pass with little controversy."

Each side is backing away from components that would be deal breakers for the other side.

Republicans have acknowledged that the emerging shape of the stimulus legislation made it more likely that President Bush would not get his tax cuts extended before he left office. "It's impossible for me to believe that [permanent tax cuts] would be part of the agreement, as much as I would like to see that happen," Boehner said. "If they don't get it in the stimulus package, they are not likely to get the Bush tax extension this year," said Bill Frenzel, a former Republican congressman from Minnesota.

Democratic leaders, including House Majority Leader and PAYGO stalwart Steny Hoyer (D-MD), have signaled that in this case they will most likely waive the pay-as-you-go rule, which requires tax cuts and new spending to be offset.

Why the bipartisan cooperation on the Hill regarding the stimulus and the jettisoning of the Bush wish to extend his 2001/2003 tax cuts? Maybe because Democrats and Republicans in Congress have something in common with each other and in contrast with the President: they are up for re-election; he isn't.

Per a report released yesterday by the Bureau of Labor Statistics (BLS), wholesale prices in the U.S. leapt by 6.3 percent, the largest calendar year increase since 1981. The surge was lead by a 18.4 percent increase in energy costs, with gasoline prices up 37.1 percent. Producer food prices increased 7.4 percent in 2007, the largest hike in four years.

These increases are worrisome, especially against the backdrop of the broadly forecasted economic slowdown, if not recession, for 2008. But does this mean we are entering a period of stagflation, a combination of inflation and growth stagnation? If so, that would greatly complicate the fiscal and monetary policy mix in an economic stimulus plan.

Bear in mind the critical difference between producer and consumer -- between PPI and CPI. The difference is not too comforting at first blush.

Today, BLS announced that CPI rose 4.1 percent in 2007 -- the largest 12-month rise since 1990. But "core" inflation -- CPI minus changes in food and energy costs -- increased by only 2.4 percent in 2007, a deceleration from the 2006 core inflation rate of 2.6 percent.

On balance then, private analysts are saying, the latest producer price figures likely would have little impact on concerns about rising inflation. So, as an AP report today indicates, "Analysts said that with core prices generally remaining well-behaved, it will give the [Federal Reserve] bank the leeway to cut interest rates further to battle a serious economic slowdown" -- meaning that despite the significant jump in both producer and consumer price inflation in 2007, there is little worry about stagflation... for now.

I don't know where to start with this week's Samuelson column ("Lollipop Economics"). It's a mess. I guess the quality control person at the Post had the day off.

As expected, Samuelson devotes another chunk of prime pundit real estate to heft the long term fiscal imbalance on the shoulders of the Baby Boom generation and their impending retirement. This is, of course, just wrong, wrong, wrong. As has been documented numerous times, the fiscal challenges of the next fifty years lay squarely in the rapidly raising cost of health care.

The premise this time for his Social Security bashing is Washington's current obsession with fiscal stimulus. Samuelson's main point is that a $100 billion economic jump-start is nothing more than an election-year gimmick aimed at bribing voters. That Samuelson fails to recognize that good politics and good policy are not mutually exclusive is simple-minded, and absolutely cynical when literally thousands could be affected by it. However, he also objects to fiscal stimulus on the grounds that:

1. Such a package is too small to do any good ("something much larger is needed")
2. 1.1 million lost jobs is no big whoop ("a setback, but not a disaster")
3. This recession is different than others ("Only time and patience will cure some economic problems")
4. And besides, recessions are good ("[they] dampen prices and incipient inflationary psychology")

Wow. Logically Samuelson cannot simultaneous believe (A) and (C). And while (B) and (D) are complimentary, they underscore his total lack of concern for people.

UPDATE: I hope Congress listens to the Congressional Budget Office, and not Samuelson, when it says:

[T]o add three-quarters of a percentage point to the growth rate of GDP over a year, it might be necessary to increase the budget deficit for the year by close to three-quarters of 1 percent of GDP, or about $100 billion.

The Congressional Budget Office released a paper today, Options for Responding to Short-Term Economic Weakness, that offers an economic stimulus proposal that differs somewhat with what both Democrats and Republicans have been suggesting.

CBO argues that a mix of cash rebates -- which many have advocated -- and a "patch" to further extend higher exemption levels under the alternative minimum tax through 2008 -- a curious approach -- would be among the optimal stimulus tools.

The paper reasonably says that permanent reductions in tax rates or a payroll tax "holiday" could be ineffective because of processing delays and challenges for employers in implementing the tax cuts.

But it goes on to make this questionable assertion (p. 13):

To the extent that taxpayers expect that the patch would not be extended again, fixing the AMT for another year could boost consumer demand in 2008 as taxpayers avoid having to adjust withholding and estimated tax payments in calendar year 2008 to reduce what they will have to pay with their tax returns in 2009.

Expect that the patch would not be extended again? Is there any basis for such an expectation? And even if passage of a patch did provide a boost to consumer demand, when might all this realistically occur anyway? The assertion is particularly odd because the paper recognizes elsewhere, as almost no one disputes, that "problems can arise if the policy change that is adopted does not affect spending immediately or if there are lags in enacting or implementing policies."

Posted by Dana Chasin, 08:02:48 PM



Swing District Voters' Perceptions of Tax Policy

A Greenberg, Quinlin, Rosner Reasearch survey released today has some findings regarding the perceptions of voters in swing congressional districts regarding tax policy.

As described in the memo accompanying the survey:

With the rising urgency about the economy, President Bush and the Republicans candidates are in near lock step calling for tax cuts, and above all, making President Bush's tax cuts permanent. You can almost hear the relief that the subject has turned to taxes again. But they are wrong. Republicans no longer have any advantage on taxes...

In our survey conducted in mid-December in the battleground, the most competitive 65 congressional districts — 25 held by Democrats and 40 by Republicans... The Republicans are intent on starting the debate with "making the Bush tax cuts permanent." A majority of 55 percent agree that Bush's tax cuts have not been worth it... The Republican counter argument that the tax cuts were a good thing because they have helped strengthen the economy and allowed Americans to keep more of their own money wins the assent of only 40 percent, trailing by 15 points. This sentiment against the Bush tax cuts prevails in both the Democratic and the Republican-held districts.

Maybe the (pre-?) recession climate is fueling these perceptions among voters in "purple" districts, but perhaps the survey's findings go deeper than that. Has the era of pronounced tax aversion in the U.S. that has held sway since the advent of California's Proposition 2 1/2 begun to abate somewhat? Are the Reagan-Bush era tax cuts starting to look like too much of a good thing, for too long... benefiting too few people, and the others too little?

That Heritage piece to which I linked earlier - Tax Rebates Will Not Stimulate The Economy - is one for the archives. I look forward to reading this for a chuckle the next time I'm feeling a bit down. Comedy gold:

Economic growth requires four main factors: 1) a motivated, educated and trained workforce; 2) sufficient levels of capital equipment and technology; 3) a solid infrastructure and 4) a legal system and rule of law sufficient to enforce contracts.

All true, except Brian M. Reidl hilariously omits another factor required for economic growth, a factor that drives about 70% of economic growth - consumer spending. So, yes, Mr. Reidl, tax rebates will, in fact, stimulate the economy.

One wonders what kind of pharmaceuticals the Heritage Foundation is into these days, because this is way out there ($):

Brian M. Riedl, a policy analyst at the Heritage Foundation, argued in a paper issued Jan. 10 that tax rebates do not stimulate the economy, but lower tax rates do.

"High tax rates reduce economic growth because they make it less profitable to work, save and invest. This translates into less work, saving, investment and capital--and that results in fewer goods and services. Reducing marginal income tax rates has been shown to motivate workers to work more." []Riedl wrote.

Not only would Riedl fail tenth-grade economics for saying that "tax rebates do not stimulate the economy," but the idea that the economy is currently grinding to a halt because workers don't feel like working is breathtakingly moronic. In December, the unemployment rate bounded from 4.7% to 5.0%. Riedl must assume that workers, facing "high" marginal tax rates, have been asking employers to lay them off.

Why does anyone take Riedl and his Heritage Foundation ilk seriously? And how do "experts" from Heritage get invited to testify before the Joint Economic Committee?

OMB Watch released a new report today examining the IRS budget and enforcement policies and their impact on the tax gap. The report, Bridging the Tax Gap: The Case for Increasing the IRS Budget, focuses on three key areas in need of reform at the IRS: auditing, tax collection, and services for low-income taxpayers claiming the EITC.