Officials strike deal on stimulus plan — but is it any good?

January 24, 2008

The good news is, Congress and the White House struck a tentative deal on an economic stimulus plan. The bad news is, Congress and the White House struck a tentative deal on an economic stimulus plan.

House leaders and the White House on Thursday reached a tentative agreement on an economic stimulus package of roughly $150 billion that would pay stipends of $300 to $1,200 per family and provide tax incentives for businesses to encourage spending.

A House aide close to the negotiations said that Speaker Nancy Pelosi of California and the Republican leader, Representative John A. Boehner of Ohio, reached an “agreement in principle” after Ms. Pelosi agreed not to include two proposals that had broad support among Congressional Democrats: an extension of unemployment benefits and a temporary increase in food stamps.

In exchange for those concessions, the Bush administration and House Republicans agreed that the stipend of at least $300 would be paid to all workers receiving a paycheck, even those who did not earn enough to pay taxes last year.

“The vast majority of low-income people are going to get a minimum of $300,” said a White House official familiar with the outlines of the accord.

The “tentative” agreement was struck between House members and the administration, which hardly signifies a done-deal. Senate Dems have clearly emphasized what they see as the need for extending unemployment benefits and increased food stamps, ideas Republicans dismissed today as “extraneous spending.”

Sen. Max Baucus (D-Mont.), chairman of the Finance Committee and one of the chamber’s most fiscally conservative Dems, reiterated his interest in extending unemployment benefits. When Baucus criticizes a stimulus bill from the left, you can assume Republicans are happy with the deal.

Kevin argues that, on the whole, it could have been worse, especially given that today’s deal limits rebates to single taxpayers who earned up to $75,000 or couples with incomes of as much as $150,000.

Virtually everyone who paid payroll taxes will receive $300 and the $150K household cutoff will prevent at least some of the wastage we’d get from giving money to people who are likely to just save it instead of spending it.

(And what’s wrong with saving money, you ask? Nothing. That’s what we’ll do with our rebate, and national savings will thereby increase by $1,200. Hooray! Unfortunately, this is all funded by deficit spending from the feds, and increasing the deficit reduces national savings — in this case by $1,200. Net effect to the economy: pretty close to zero.) […]

Bottom line: I doubt that this plan is going to provide an awful lot of stimulus. But it might do a
bit of good, and certainly won’t do any harm. In today’s world, that counts as a win.

Paul Krugman, meanwhile, has a less optimistic view.

If this description is correct, the stimulus bill will be a real disappointment. As I pointed out in an earlier post, economic theory — Milton Friedman’s theory! — suggests that if we want stimulus funds spent, they should go to people in temporary economic difficulty who are likely to be liquidity-constrained. But it appears that most of the measures that would do that — benefits to the unemployed, food stamps, aid to state and local governments — are being bargained away. Even the tax credit is apparently not fully refundable, so those who need it most, and are most likely to spend it, won’t get the full amount.

There’s probably plenty additional wrangling left to do, with the Senate weighing in with its own take, which the White House probably won’t like at all. Stay tuned.

Dems should put the cost of this onto the humongous industries that started this mess, instead of borrowing the money from our kids. Of course that’ll never happen with our “leadership”.

  • I wonder if the House Dems agreed to the concessions knowing that the Senate would pick up the ball when it gets over there? Not sure if that’s good or bad, or even true, but a definite possibility. Especially if the House Dems wanted to avoid a loud and very public fight that might put the shaky markets into a tailspin again, which would benefit nobody.

  • Politically, it’s a good move for all parties involved. Better for the Dems to participate than foot-drag at this juncture. Though I think the Dem leadership, once again, backed off too quickly and gave too many concessions.

    In economic terms, Krugman said it all — it’s a sugar pill.

    Don’t pay attention to economic fundamentals, America, here’s 600 rapidly inflating dollars!

  • Wow! The minimum averages out to 25 bucks a month per person! They can buy a little more beer or an extra bag of chips, or maybe take in a couple of movies. —Wow!

  • I think I will purchase some lotto tix (including scratchoffs) and American liquor with a portion of my rebate. That will help the US economy–don’t know what, beyond lotto tix and US liquor, is made here in the US anymore…

  • It occurs to me that extending the S-CHIP program to cover more children would also have provided some economic stimulus, on a number of levels. The most obvious is that the money these children’s parents are spending on crisis health care – that’s the kind where you hope and pray your kid doesn’t have strep throat and then you end up in the ER with that bill and the bill for the medication – could be spent on other things.

    Parents whose kids are not sick do not have to miss time from work, which means the worker who gets no paid time off does not have the double burden of not being paid when he or she stays home with a sick child, and because the parent is at work, the productivity stays high.

    This should have been the perfect argument for funding a much-needed expansion, but no – the bill passed but without the veto-proof majority.

    I see the value in extending unemployment benefits and food stamp eligibility, but I was initially disturbed when the plan proposed by the WH would not have put any money in the hands of those who do not make enough money to pay taxes. When milk and orange juice are reaching close to $5 a gallon, when electricity and heating oil costs have gone through the roof, there is simply no way people who are working and still below the poverty level have one extra dollar to put into the economy.

    As it is, the rebate will probably be too little, too late, since the IRS says it will be too busy processing tax returns to be able to generate checks before May, and it might be June or July before all the checks would go out. I can’t see how waiting 4-5 months to get $300 is going to do much for the economy or the people who receive the checks.

  • Does nothing for the milliions of Americans who depend on Social Security checks as their only source of income. Screw the poor.

  • “…since the IRS says it will be too busy processing tax returns to be able to generate checks before May, and it might be June or July before all the checks would go out. I can’t see how waiting 4-5 months to get $300 is going to do much for the economy or the people who receive the checks.”

    Don’t know why sending checks would need to be required. Simply provide employers the ability to reduce federal income tax deductions from 1-3 pay checks.

  • We need a 60 vote majority in the Senate and a progressive in the White House. When we accomplish those two goals, we can do what’s right. Until then, we can cry all day long about such compromises, but it won’t do a bit of good.

    This package is definitely better than nothing (and nothing is our only other option).

  • Anne said:
    It occurs to me that extending the S-CHIP program to cover more children would also have provided some economic stimulus, on a number of levels.
    (snip)
    This should have been the perfect argument for funding a much-needed expansion, but no – the bill passed but without the veto-proof majority.

    I know it’s off-topic, but I want to add to what Anne said anyway….

    It continues to dismay me how astonishingly inept the Democrats are at shaping the political debate. “S-CHIP” sounds like a program to implant computerized identity chips in children.

    Democrats should have called it the “Human Life Should be Treated Like It’s Sacred After It’s Born Too” Bill. Let Republicans vote against that.

    Back on topic, watch for Republicans in the Senate to hold up the stimulus bill until they get more money going to corporations and millionaires. And watch Harry Reid let them get away with it.

  • We’re at war, and they are giving money away. We live in bizarro world.

    I’m spending mine on American made scuba gear in case you were wondering…

  • I see Dittohead Seaberry has returned. The poor guy’s incapable of thinking for himself, and as evidenced above, drinks the Kool-Aid without even bothering to mix it with water first.

  • In the “give a man a fish and he can eat for a day, teach a man to fish and he can eat for a lifetime” school of economics, the government thinks it is really smart to give each person the caloric equivalent of a sunfish. Thanks guys.

    So China will dump a few more big screen TVs on our shores, some manufacturers will get rid of some back stock, credit card companies will see some debt load paid off and Paris Hilton will get an extra bottle of Kristal in Vegas. Then what?

    This seems to be the equivalent of a friend’s philosophy that when you know you’re going to go through some hard times, buy yourself something extravagant to comfort in the looming days of despair. It will be more fun for all of us to watch news reports of the looming recession in Hi-Def. Thanks federal government for putting this on our credit card for us. Our other ones are already maxed-out.

  • “Our economy–with its dizzying bubbles, wild lending sprees, reckless downsizings and planet-wide hyper-sensitivity–has gotten too far disconnected from ordinary human needs. We could take the current crisis as an opportunity to fix that, at least in part, by shoring up government support for the needy and the dislocated. Or we can wait around and watch while the appropriate imagery gets nasty, as this ghostly creature, “the economy,” starts acting like a nymphomaniac junkie in withdrawal.”

    – Barbara Ehrenreich

  • It’s very, very disappointing to me that this measure doesn’t include an extension for UI. That’s shameful, but hardly surprising from our “Democratic leadership.”

    Have these people done anything worthwhile since we all expended so much time, money and energy to put them into power?

  • As I said in an earlier post, Pelosi is as useful as tits on a boar.

    God, she’s a waste. If you know how progressive San Francisco’s (Phil) Burton machine actually was (see, e.g., Rage for Justice), and realize that it was that machine which propelled Pelosi into Congress, then compare all that with her sniveling performance as Speaker, you barely begin to feel my pain.

  • petorado, you are exactly right.

    businesses of essential goods and services will now raise their prices a bit (hey, when you flood the market with cash, you expect a little inflation, right?) and slickly capture the subsidy, making a slightly inefficient two-step handout to business that provides the most meager short-term assist for poor and working people. the businesses will then sit on it or flow it to the top, where it will not trickle down and will not help the economy. in the meantime, the new threat of inflation from the spike of money in the market will move the Fed towards holding or raising rates sooner, undoing some of the good of the 3/4 pt hike.

    In the end, those in need are no better off, and neither is the economy as a whole, but 150 billion gets handed to the business community.

    ok, so i’m a little cynical.

  • So we’ll borrow $150 billion from China so each of us can go out and spend $800 on goods made in China? Oh, wait, we’ll get those checks in the summertime — let’s put that money we borrow from China and pour it into our gas tanks to the delight of Saudia Arabia, Iran and Venezuela.

    Aren’t our congresscritters so smart. Or is we who are so dumb?

  • the businesses will then sit on it or flow it to the top, where it will not trickle down and will not help the economy.

    Well, not help the US economy, anyway.

    I hear that Qatar has some great deals on luxury housing for rich CEOs, and some really good incentives for moving your corporation there, though. Beachfront property and everything!

    And, what doesn’t “flow to the top” and move off to Qatar will “flow to the Saudis” by way of our gas tanks and probably end up funding some radical Wahabbiist sect. Just in time for a hand-off in power between our political parties! How fun!

  • I hat to be too un-PC, but 17 billion dollars in earmarks will have more effect than 100 billion in rebates, even if they go to a Woodstock museum. At least the earmarks create ongoing jobs.

  • This plan is clinically retarded for a few reasons:

    1. It pretty much ignores those who need help most — those who don’t earn a paycheck, or a very small one. Simply extending unemployment benefits and increasing food stamp payments would have a better effect for those folks than a few hundred fleeting dollars.

    2. Us middle-class folks will either use it to pay off debt, or put it into savings — Almost every single person I’ve spoken to today agree that’s what they’ll do (just like the last time they tried this in ’02). Granted, putting it into savings is probably what the Bernake really wants — an infusion of a few billion into the banking system will (at least temporarily) help prop up a system that’s reeling. But it’s not going to do much to help the economy.

    3. More borrowing will just delay the problems — It’s not like they’re pulling this money out of some bank account where it all resides. They will have to borrow, again, from other countries to do this. Just another way that China and oil-rich middle eastern countries are buying the U.S. And some people think our country is under attack from terrorists. We’re not. We don’t need anyone to attack us because the likes of China, UAE and others will just purchase us into irrelevance.

    4. Cost of living is ignored — A $1,200 check here in Kansas City is going to go a lot farther than it would in New York. Not sure if they could ever adjust it, but it’s a consideration that they’re ignoring.

    4. It’s a short term fix for long-term problems — Maybe someone can explain how a multi-trillion dollar economy is going to be propped up by a few billion, because I don’t get it. If our policy makers (including the faux Dems who need to be replaced by ones with spines … and soon) really want to help the long-term health of the economy, then how about we take that $11 billion a month in Iraq and use it here at home. Job re-training for laid-off workers, extended unemployment benefits, educational assistance, etc. etc. could all become realities if we weren’t pissing all that cash away in the sand.

    Yes, something is perhaps better than nothing. But this plan does nothing but put us further into debt, isn’t enough to get people to buy more than a few things here and there, and doesn’t address the systemic problems that have created this mess, such as deregulation of the banking sector, horrific new bankruptcy rules, and health care and energy costs (and food here real, real soon) that are growing far, far ahead of wages, among others.

    But hey … I may get another few months of XBox Live service out of the deal. So it’s not totally horrible, I guess …..

  • I am just livid.

    I would have to agree with petorado and his “give a man a fish” reference

    I just can’t believe this is going to help the country long term. Let alone the value of the American dollar.

    The American dollar is losing more value as we speak.
    The people running this country have lost their minds.

  • This is a**backwards. Do you really want to help the People, or the Rich Bast****?
    Start with the poorest, give them $1200…the old on SS, give them $1200…cut interest rates on credit cards (retroactivly) to about 12%…tax the windfall profits of the oil companys, oh about 80% should do it, don’t give anybody who makes over $60,000. anything…and send Nancy and Harry back to Progressive Democrat school.

  • “17. On January 24th, 2008 at 3:00 pm, sarabeth said:
    Why should all non-rich people get this government handout except for retirees?”

    Because us smucks don’t run out and spend on impulse buying.

  • I am a member of the Post War Baby Boom. In a few years I will reach 65. LIe many in my generation, I will have to work as long as I am physically unable.

    Is this $300 likely to increase my spending or investing, in either the short or long term, relative to the $300,000 life time savings and investments that were lost in the crash of 2000-2002?

    I bring this up since the devastation America’s largest generation’s savings has decreased the spending power of millions of citizens who should be at their spending peak and are now, as I am, reduced to lower-middle-class-eke-by-wage earner in a new career in my 60’s.
    In addition, many of us, instead of being fairly well off in our retirement, are going to become burdens on Medicare and Medicaid.

    This bust isn’t going to get fixed any time soon, and $300 to $1200 bucks ain’t going to fix nothing, though it will increase the national debt, with the largest demographic of the population trying to save as much as they can for their old age, in safe investments, when old age is just around the corner.

    Bush reads Marie Antoinette as “If they can’t afford cake, let them eat dog food.”

  • My wife and I are supporting two grandchildren on my Social Security check and small pension – all our costs have risen this year (groceries, gasoline, heating) – but after years spent in the work force we will not be eligible for any “stimulus” help – thanks Congress/WH! A pox on all politicians. . . . .

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