George Bush came to Portland to push his economic stimulus package. Oregonians were not fooled by his "voodoo economics" and hundreds rallied to protest his economic plan. The Bush stimulus package didn't fool the nonpartisan Congressional Budget Office either. The purpose of an economic stimulus package is to jumpstart economic growth. The CBO looked at all the proposals out there and released an analysis Friday that concluded that the Bush Administration's proposals would generate "little bang for the buck," to use their technical terminology.
The Bush proposals are based on the discredited supply-side theory that shoveling money into the pockets of the wealthy will allow some to trickle down to the rest of us. Economic stimulus requires increased consumption, not increased savings and wealth accumulation. We know from experience and from research studies that when the wealthy get tax rebates and tax cuts, they tend to put this additional money into savings, not consumption. When the middle class and the poor get additional money, they tend to consume. That is the engine that drives economic growth.
Extending unemployment benefits for laid off workers is the best economic stimulus. The Bureau of Labor reports that every dollar of unemployment benefits generates $2.15 in the community. That is real economic. Bush proves his own proposal is merely camouflage for corporate tax cuts by excluding significant numbers of workers from the extension.
Another strong economic stimulus proposal is a temporary subsidy of the COBRA health insurance payments for the unemployed, which The Oregonian wrongly characterized as a permanent new entitlement. The proposal on the table is for a temporary subsidy in response to the extraordinary layoffs after the September 11th tragedy. When workers are laid off, not only does their income go down, they have the additional cost of paying for their health insurance. Subsidizing their insurance will address this double bind facing the unemployed and help increase personal consumption. The GOP proposal of providing tax credits for health insurance shows how out of touch they are with ordinary people's lives. Somehow, laid off workers are expected to have enough cash on hand to pay for their health insurance for a year and wait until the next year for a tax credit to offset that expense. It's the equivalent of extending a 10-foot rope to someone in a 40-foot hole.
The CBO agreed with Democrats that the best tax stimulus ideas are temporary tax holidays, such as a one-month Payroll Tax Holiday or a Sales Tax Holiday, though the last wouldn't help Oregon much. They would, according to the CBO, have the largest stimulus effect and best of all, they are temporary so they would not increase long term budget deficits. Most of the proposals are corporate tax cuts -- in fact two-thirds of the Bush proposals goes to the wealthy and to corporations.
The Bush Administration's Treasury Secretary Paul O'Neill made the best argument against corporate tax breaks. Describing his experience as CEO of Alcoa, he said, "I never made an investment decision based on the tax code. "If you are giving money away I will take it. If you want to give me inducements for something I am going to do anyway, I will take it. But good businesspeople do not do things because of inducements, they do it because they can see that they are going to be able to earn the cost of capital out of their own intelligence and organization of resources."
The Bush proposal is not an economic stimulus package and all the packaging in the world won't make it so. Nor is it a compromise, though the Administration calls it one. Look at their "compromise" on eliminating and rebating the Alternative Minimum Tax -- the reprehensible plan to rebate all the taxes America's wealthiest corporations have paid since 1986. The Administration's idea of compromise on the AMT is spreading that huge corporate welfare rebate over three years instead of paying it out in one lump sum. This proves false their claim that it has a stimulus effect since there is no reason to believe we will still be in a recession in three years. ..
The only thing that could insure that the recession lasts three more years would be passing the Bush proposal. We are already facing budget deficits and will need to borrow from Medicare and Social Security. Though Bush would like the public to blame that on September 11th, we were already facing deficits before the tragedy and those deficits have only worsened. Thanks to those tax cuts last spring, long-term interest rates remain high, despite the Federal Reserve's frequent cuts in interest rates. This is because lenders know that the 2001 Bush tax cut will cause years of deficits down the road as they get phased in year by year. This also stifles investment. The 2002 Bush proposal will only compound those deficits and may drive interest rates so high that the economy will be unable to grow out of this slump.
Supply-side economics drove this country into the Great Depression and the horrible recession of the first Bush presidency. National unity should not prevent us from stopping yet another dangerous and costly spell of economic "voodoo".
RuthAlice Anderson
President, Oregon Action