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Morning Bell: A Trillion Dollar Failure

Posted By Conn Carroll On February 12, 2009 @ 10:04 am In Ongoing Priorities | Comments Disabled

The United States Congress is about to pass the largest single-year increase in domestic federal spending since World War II [1]. Despite the fact that neither the Republicans in Congress, the media, nor the American people have been allowed to read the bill, the House plans to vote on the plan today [2]. The Senate will quickly follow suit so that the bill will hit President Barack Obama’s desk by Monday. Even without the full benefit of digesting what is in this trillion dollar debt bill, over 200 economists [3] have expressed their belief that this plan is destined to fail. And conservative economists that once supported the idea of a stimulus are now calling the current plan “An $800 Billion Mistake. [4]” Even center left economists like President Bill Clinton’s budget director, Alice Rivlin have told Congress that the long-term spending items in the plan “should not be put together hastily and lumped in with the anti-recession package [5].”

This past summer, Obama Administration National Economic Council director Larry Summers said that any stimulus bill must be “timely… targeted … and credibly temporary. [6]” The plan coming out of Congress is none of those things.

Not Timely
The Heritage Foundation has never believed that temporary tax cuts have a stimulating effect on the economy. That is why last year we predicted that President George Bush’s tax rebates would not help the economy. The Obama Administration temporary tax cuts will be equally ineffective. However, according to the Congressional Budget Office [7], the tax cut portion of the stimulus bill was the fastest working part of the package. It was also one of the first things reduced in the conference committee to make room for more spending. This means the stimulus will be even slower acting than the CBO originally predicted.

Much of the infrastructure spending in the bill will also not help the economy recover. The Obama Administration’s budget director, Peter Orszag (who was previously head of the CBO) authored a report [8] in 2008 stating: “Large-scale construction projects of any type require years of planning and preparation. Even those that are ‘on the shelf’ generally cannot be undertaken quickly enough to provide timely stimulus to the economy.”

Badly Targeted
The White House has pretty much conceded that most of the stimulus bill is not fast acting and are instead telling the Washington Post [2] that “the president secured many of his biggest priorities in the legislation, including the longer-term health-care and energy investments that the administration views as a down payment on broader reforms.”

Many of these “broader reforms” will undermine immediate economic recovery, including:

The bill also settles old ideological scores including the abolishment of the bipartisan 1996 welfare reform policies [12] and a ban on funds for faith based educational institutions [13].

And then there is the pork. Despite assurances that the bill would be pork free, the Obama Administration has been crisscrossing the country highlighting which local pork projects are in the pla [14]n. Plus the $6.5 billion line item for medical research was key in winning Sen. Arlen Specter’s (R-PA) vote [15].

Not Temporary
There is nothing credibly temporary about the spending in this bill. The new welfare spending in this bill has already become the new budget baseline and anyone who dares to try pare it down is being attacked for “slashing [16]” government funds. According to Heritage fellow Robert Rector, once this permanent new spending is factored in, the real cost of the plan balloons to $1.34 trillion. [17]

Trillion Dollar Deficits for Years to Come
The “stimulus” bill alone will create more debt (approximately $1 trillion including interest costs), than Bush’s first three years of budget deficits combined [18] ($948 billion). Under the Reagan Administration, the deficit peaked at 6% of GDP in 1983. According to the CBO the 2009 deficit will reach 8.3% of the economy, not including the stimulus or bank bailout cash. If you include the permanent nature of the stimulus spendathon, the deficit could hit nearly $2 trillion, or 13.5% of the U.S. economy. [1]

That is why the CBO has predicted that this so-called stimulus bill will actually harm economic growth. [19] Democrat appointed CBO director Doug Elmendorf explains why [20]:

The principal channel for this effect is that the legislation would result in an increase in government debt. To the extent that people hold their wealth in the form of government bonds rather than in a form that can be used to finance private investment, the increased government debt would tend to ‘crowd out’ private investment—thus reducing the stock of private capital and the long-term potential output of the economy.

Why are we passing a stimulus bill that our own government is telling us will cause our economy to shrink?

Quick Hits:


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2009/02/12/morning-bell-a-trillion-dollar-failure/

URLs in this post:

[1] the largest single-year increase in domestic federal spending since World War II: http://online.wsj.com/article/SB123440436240475615.html

[2] the House plans to vote on the plan today: http://www.washingtonpost.com/wp-dyn/content/article/2009/02/11/AR2009021101836.html

[3] over 200 economists: http://www.cato.org/fiscalreality

[4] An $800 Billion Mistake.: http://www.nber.org/feldstein/washingtonpost_012909.html

[5] should not be put together hastily and lumped in with the anti-recession package: http://www.brookings.edu/testimony/2009/0127_budget_rivlin.aspx?emc=lm&m=221840&l=40&v=9

[6] timely… targeted … and credibly temporary.: http://belfercenter.ksg.harvard.edu/publication/17845/why_america_must_have_a_fiscal_stimulus.html

[7] Congressional Budget Office: http://cboblog.cbo.gov/?p=204

[8] report: http://www.cbo.gov/ftpdocs/89xx/doc8916/01-15-Econ_Stimulus.pdf

[9] $87 billion dollar bailout for state Medicaid: http://www.heritage.org/Research/HealthCare/wm2235.cfm

[10] Wage controls: http://www.washingtonpost.com/wp-dyn/content/article/2009/02/11/AR2009021103953.html

[11] Billions for increased government health care bureaucracy: http://www.foundry.org/2009/02/09/theres-socialized-medicine-burried-in-obamas-trillion-dollar-debt-plan/

[12] abolishment of the bipartisan 1996 welfare reform policies: http://www.heritage.org/Research/Welfare/wm2287.cfm

[13] a ban on funds for faith based educational institutions: http://content.usatoday.com/communities/religion/post/2009/02/62665405/1

[14] highlighting which local pork projects are in the pla: http://www.politico.com/news/stories/0209/18757.html

[15] the $6.5 billion line item for medical research was key in winning Sen. Arlen Specter’s (R-PA) vote: http://www.nytimes.com/2009/02/12/us/politics/12stimulus.html?_r=1&ref=todayspaper

[16] slashing: http://www.foundry.org/2009/02/06/the-left-has-already-proved-nothing-is-temporary-about-this-spending/

[17] the real cost of the plan balloons to $1.34 trillion.: http://www.heritage.org/Research/Economy/wm2276.cfm

[18] will create more debt (approximately $1 trillion including interest costs), than Bush’s first three years of budget deficits combined: http://www.foundry.org/2009/02/11/president-obama-set-to-exceed-president-bush%E2%80%99s-deficits/#more-2567

[19] this so-called stimulus bill will actually harm economic growth.: http://cbo.gov/ftpdocs/96xx/doc9619/Gregg.pdf

[20] explains why: http://cboblog.cbo.gov/?p=205

[21] leftist dictator Hugo Chavez is turning to anti-Semitism: http://www.usatoday.com/news/world/2009-02-11-chavez_N.htm

[22] blaming environmentalist policies: http://www.theage.com.au/national/angry-survivors-blame-council-green-policy-20090211-83p0.html?page=-1

[23] cost the American taxpayers $11 billion: http://cbo.gov/ftpdocs/99xx/doc9981/ReidAmendment.pdf

[24] waived Commerce Department sanctions against Syria: http://www.forbes.com/2009/02/11/syria-assad-sanctions-opinions-columnists_0212_claudia_rosett.html

[25] who has been accused of accepting money to illegally influence the $64 billion humanitarian program: http://www.eveningsun.com/ci_11680002

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