In what his aides billed as a major economic speech on Thursday, President-elect Barack Obama said that 2009 would “mark a clean break from a troubled past and set a new course for our nation.”
The “clean break” part of the statement seems an apt description for the spending part of Mr. Obama’s emerging, roughly $800 billion recovery package. He has outlined some $500 billion for bolstered unemployment benefits, aid to states and investment in the nation’s crumbling and outdated infrastructure.
But the tax-cut components of the package are hardly a clean break with the Bush years, presuming that is what Mr. Obama meant by the troubled past. To win the support of Republican lawmakers, the package is shaping up to include roughly $150 billion in business tax breaks, even though such breaks are widely recognized as packing very little bang for the buck when it comes to economic stimulus.
And to make good on one of his own (misguided) campaign promises, Mr. Obama is proposing to provide tax cuts to people who make up to $200,000 a year.
The proposed tax break — up to $500 for individuals and $1,000 for families — makes good sense for low- and middle-income Americans, because the money is likely to be spent quickly, thus boosting demand in a contracting economy. But higher up the income ladder — a couple making $200,000 a year is in the top 9 percent of households — tax cuts are likelier to be saved than spent, providing relatively little stimulus.
The Obama team clearly views the tax giveaways as good politics, helping to win support for the overall package. But the severity of the nation’s fiscal and economic situation should make it think twice.
The day before Mr. Obama’s speech, the Congressional Budget Office projected a 2009 deficit of $1.2 trillion, nearly a threefold increase from 2008. The federal budget — already deep in deficit after years of tax cutting while waging two wars — is being pushed further into the red by a recession that is now more than a year old and has no end in sight.
Concern over swelling deficits should not stop Congress from taking steps to revive the economy. But rising deficits — coupled with long-term budget problems driven mostly by the rising cost of health care — make it imperative to get the most from every dollar that is spent on stimulus. That means spending less money for tax cuts for business and high-income Americans, and more for government programs like, say, unemployment relief and aid to states.
The day after Mr. Obama’s speech, the Labor Department released the employment report for December, showing that employers had shed more jobs in 2008 than in any year since 1945. Worse, the pace of job loss is accelerating. In the third quarter of 2008, the economy shed an average of 199,000 jobs a month; in the fourth quarter, 510,000 jobs were lost on average each month.
Even with a stimulus plan, unemployment will remain uncomfortably high in 2009, and even after it bottoms out, it is likely to revive slowly. That calls for not only extending unemployment benefits but expanding them, so that they cover more workers. Currently, less than half of jobless workers collect unemployment compensation.
The deteriorating job situation also calls for ensuring that states do not have to make unduly burdensome cuts in their own budgets. State and local governments are big employers in their own right, and money that is fed through them quickly reaches beneficiaries and contractors, as well as employees, helping to save and create jobs by supporting demand.
Every dollar spent on a politically expedient tax cut is money that is not spent where it could do more good. It also perpetuates the corrosive debate in which taxes are portrayed as basically evil and tax cuts as unmitigated good. That is not a debate that Mr. Obama should engage.
When the economy recovers, the nation will face a far more difficult task than deciding how to spend its way out of a slump. As a nation, we will have to right the country’s severe long-term budget imbalance. That will require reforming health care and cutting spending, and — yes — tax increases.
Mr. Obama will need to lead that fight too. Planting the idea that tax cuts are not an overarching solution to serious problems is a good place to start.
The urgency of the moment requires the right thing economically speaking. To offer tax cuts as a lure to the GOP is questionable politics because in the end the measure of President Obama is going to be how he revives the economy and provides the framework for a sustainable future. And the game of tax cuts is one no longer worth playing because that’s a race to the bottom and economic ruin. I don’t care if you raise my taxes, frankly. I do care that you give me health care, that you rebuild my cities, that you invest in education, that we start replacing the hydrocarbon economy with something more sustainable.