The Economic Stimulus Package: Will We Witness a New Era?

The Economic Stimulus Package: Will We Witness a New Era?

Senator Barack Obama (D-IL) has been calling for a new politics, one beyond petty bickering and partisan namecalling. His concerns have been echoed by his rivals.

Obama says he is sick of the games that are played in Washington. He says he is tired of his colleagues trying to gain partisan advantage in the legislative arena. He says it is time for a new era, an era when the needs of the citizens of the United States come first and petty party partisanship is set aside. His political success and his rapid rise in the polls indicate that this message resonates with the American people.

The proposed economic stimulus package, which has been discussed by the White House and by both parties on Capitol Hill, is an ideal opportunity for testing the Democratic candidates’ proposed new era of political cooperation.

Democrats and Republicans, liberals and conservatives, business and labor groups all have been talking about the need to pass economic stimulus legislation as a way of either heading off recession or lessening the impact of any economic downturn.

Everyone seems to fear the fallout from the sub-prime mortgage credit crunch, and they all sense a general slowdown that has hung over the economy in recent months.

Democratic research groups and members of the House leadership have put forward traditional economic stimuli, such as a one-time $1,000 payroll tax rebate, lengthening the eligibility period for unemployment insurance by six months, and increased aid to states in order to avoid a situation where the states exacerbate any slowdown by laying off workers in order to respond to their own fiscal problems. There has also been talk of a new debt-for-equity swap between distressed homeowners or poorer first-time home buyers and their counterpart mortgage lenders, in order to forestall further foreclosures and help to move the glut of houses and condos out of inventory.

For their part, the Republicans and the business community have warned against paying for the stimulus package by eliminating parts of President Bush’s 2001 and 2003 tax cuts. They argue that it would be a self-defeating proposal, since it makes no sense to be stimulating the economy through rebates in one place and contracting that same economy through tax increases somewhere else. It might be fiscally attractive to some, but it is not stimulative.

The Republicans realize that they are at a distinct disadvantage, since the Democrats control the legislative agenda. But one business-friendly tax break that has been proposed might just attract the Democratic support needed for passage. Returning to the Republican agenda is accelerated depreciation, a version of which was included in the 2001 tax law at 30 percent and then increased to 50 percent bonus depreciation in the 2003 tax law. Most agree that bonus depreciation did have the desired effect until it expired at the end of 2004, and it would have the added benefit of boosting productivity at a time when the international marketplace will be particularly competitive. Moreover, it doesn’t cost all that much. Indeed, it merely rearranges the years in which the taxes are paid. Most importantly, from House Speaker Nancy Pelosi’s (D-CA) and Ways & Means Committee Chairman Charles Rangel’s (D-NY) point of view, it can be argued that bonus depreciation is the surest jobs producer in the Congress’s quiver of tax cuts. It is the one arrow that is almost certain to hit its target.

Now all the Democratic leadership has to do is to live up to Barack Obama’s lofty rhetoric. Indeed, they need to prove that it isn’t just rhetoric. Hopefully, the results of the primaries will help them read the public mood. If so, they will realize that trading partisan barbs, or introducing interest-group-specific legislation that has no chance of passage, is not going to increase their popularity. More importantly, partisanship will do nothing to stave off the recession that may well be overtaking us.

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