What a Second Stimulus Should - and Shouldn't - Look Like

Recounting the findings of a new study by the Keystone Research Center, the Denver Business Journal
reports that "the unemployment rate would approach 16 percent
nationally -- more than 6 percentage points higher than the current
jobless rate -- if not for the federal stimulus program." This comports
with data released earlier by the Congressional Budget Office and with the opinions of both liberal and ultra-conservative economists.

Such consensus should end the debate about whether or not Congress
should pass another stimulus bill. It should - the only debate should be
over the shape of that stimulus bill, and even that shouldn't be up for
debate, though, unfortunately, it most certainly is.

From both liberal and conservative economists - as well as from
history - we know that direct government spending on things like
infrastructure and education investment is a good way to prime the
economy in the short term and the long term. So is spending on stuff
like unemployment benefits and food stamps, which puts money into the
hands of those who will spend it immediately on necessities. And, of
course, we know from polls
that spending on such priorities is far more politically/electorally
popular than devoting more money to corporate tax cuts or to deficit
reduction.

We also know from the Bush era - and from 20th century history in general - that tax cuts are far less effective at spurring economic development than direct spending. That's why this Washington Post story is so troubling:

Under mounting pressure to intensify his focus on
the economy ahead of the midterm elections, President Obama will call
for a $100 billion business tax credit this week...The business proposal
- what one aide called a key part of a limited economic package - would
increase and permanently extend research and development tax credits
for businesses...

Sure, it's great that the president today is talking about spending $50 billion on infrastructure.
As evidenced by this very diary, I obviously support such new spending.
But when the paltry sum of $50 billion is put up against double that
amount in corporate tax cuts, it seems like the administration's
priorities are all screwed up. If the job-creating weakness of the first
stimulus bill was it's willingness to devote roughly 40 percent of its
funds to less-effective tax cuts and just 60 percent to
employment-boosting spending, then a similar weakness will even more
amplified in new stimulus proposals that, by the administration's
initial figures, may end up devoting double to tax cuts what it devotes
to infrastructure spending.

After all, there are two fundamental problems with the tax cuts
being proposed: 1) In general, tax cuts have not proven to be a very
good short- or long-term job creator or economic engine and 2) In
specific, as Citizens for Tax Justice has long reported,
the R&D tax credit has become something of a corporate boondoggle,
especially in light of the far more effective direct government spending
on R&D. Even the conservative Wall Street Journal
has lambasted this particular tax credit as blatant corporate welfare,
noting that, according to the Government Accountability Office, 70
percent of it goes not to small businesses in need, but to
already-wealthy multinational firms with receipts of $1 billion or more.
Think big drug companies, as just one example.

But maybe that's the unfortunate point. Maybe this is yet another
example of the administration looking first at how a policy can satisfy
Big Money, and then at the (alleged) residual benefits to average
American workers - rather than looking at it in the opposite way. If
that's the case, it's tragic - because the success of the first
stimulus's spending gives the administration strong ammunition to put
forward a far more progressive proposal, one that would be far more
politically popular for Democrats in advance of the 2010 election.