President Bush's Economic Stimulus Proposal

The President's proposal for an economic stimulus package is aimed more at additional tax cuts than stimulating the economy.

The House Ways and Means Committee could begin marking up an economic "stimulus" bill as early as this week.

The President's proposal, bits and pieces of which have been released, while not final and not yet "scored" for the cost, is not designed to achieve the maximum economic stimulus. It contains a few good ideas, but is primarily a plan for more tax cuts and acceleration of some of the already passed tax cuts. The President's plan also includes permanent tax breaks, when most economists agree that a stimulus package should be short-term in order to accomplish the goal of immediate economic stimulus without further damaging long-term budget prospects. Sadly, rather than propose a stimulus package that is designed to do what it says -- stimulate the economy -- it appears that the President is trying to use the stimulus package as an excuse to further the agenda of more tax cuts for corporations and for higher-income Americans.

We believe that an economic stimulus package should produce immediate economic growth; not make the long-term interest rate picture worse; and focus on getting money to low- and middle-income people who are the most likely to spend it immediately. We are not opposed to tax cuts, provided that they are temporary and will actually effectively stimulate the economy.

Following are some of the proposed elements of the President's plan, and our comments.

For more analyses of the President's proposal and alternatives to it, see:

• Center on Budget and Policy Priorities analysis [1]

• Citizens for Tax Justice analysis [2]

• Economic Policy Institute economic stimulus plan [3]

• Coalition on Human Needs economic stimulus principles [4]

• National Priorities Project's Analysis, [5]

The President's ideas for economic stimulus includes:

• Reducing the individual tax marginal rate of 28% to 25% in 2002, instead of waiting until 2006 as provided for under the previous tax bill. While this sounds like a "middle-class" tax cut, it actually benefits those who make more money, since it is people with the higher incomes who will realize the full benefit of that tax bracket rate reduction. This will also reduce longer-term federal revenue substantially.
• Business tax provisions including partial expensing of business equipment that was in service on or after September 11; accelerated depreciation of capital expenditures; repeal of the corporate Alternative Minimum Tax (AMT) (even while the issue of individual filers' increased liability for an AMT has not yet been addressed); and extension of the net operating loss carry back period to five years. We agree that temporary changes in depreciation scheduling and partial expensing, or a "depreciation bonus" that would give businesses an incentive to purchase new equipment would be an effective economic stimulus. Repeal of the AMT, on the other hand, is unlikely to do any immediate good for the economy. Finally, any business tax cuts should be temporary, and the President is proposing a permanent elimination of the corporate AMT.
• A possible tax rebate of $300 for individuals or $600 for couples to people who did not earn enough income to get the full rebate earlier. This kind of one-time rebate, going to low-income people who will be the most likely to spend it immediately (because they don't have the luxury of being able to save money) is a valuable proposal.
• Extension of unemployment benefits for 13 additional weeks, but only under certain circumstances: for people who lost their jobs after 9/11, in states where the total jobless rate increases by 30% over the pre-September 11 rates, and in states declared disasters as a result of the September 11 attacks. Besides benefiting a limited number of the unemployed, this provision fails to address broader problems with unemployment compensation, including extremely low benefits in some states, and difficulty qualifying for benefits by people who work part-time, seasonally, or had low earnings.
• $3 billion in grants to state and local workforce boards to be used for health insurance coverage, income supplements, and job training for unemployed workers. While some form of grants to states would be a useful provision for economic stimulus, since many states are financially hard-pressed right now, a total of $3 billion is hardly enough to do much good. The health insurance cost alone for workers who have been laid off as a result of the economic downturn is likely to be much higher.
• Finally, the President has proposed to take the $11 billion "surplus" from the State Childrens Health Insurance Program (SCHIP), and allow states to use it to provide services for unemployed workers. This is not really a surplus-if all children who were eligible for health insurance under this program could actually get covered, it will be gone, and then some. Taking from the needs of America's children to give to another portion of the population is hardly progressive policy. Further, states are already allowed to request waivers to use some of their SCHIP surplus for other purposes, so this provision appears to be window dressing, rather than substance.

President Bush says that 50% of his economic stimulus plan is tax cuts and 50% is spending. That seems fair. But, the spending side, in addition to the few new spending measures above, includes the already passed $20 billion 2002 disaster relief and increased security emergency spending, the $25 billion increase in the discretionary spending limit, of which $18.5 billion is for military spending, and the $5 billion airline "bailout." The purpose of that spending was not economic stimulus, but an immediate response to the September 11th attacks and an increase in defense spending already agreed upon. Even the $4 billion for education included in the discretionary spending limit increase is spending, but not economic stimulus. An economic stimulus package should be configured to get the most direct and most immediate economic stimulus, not to be a tax cut in the disguise of helping the struggling economy.