No Stimulus in Tax Cuts

At first, the signs were good that the administration’s economic stimulus plan would be directed at individuals who needed fast relief. President Bush came in with a higher figure, $75 billion, than Congress had anticipated. Hard-line Republicans in Congress like Rep. Tom DeLay and Sen. Phil Gramm, both of Texas, fumed about Bush’s failure to cater to big business. Now the president appears to be caving in.

Some powerful House Republicans have pushed the Ways and Means Committee to seek a tax bill that goes further than the administration’s proposal with, among other things, capital gains tax cuts.

The White House has not released the details of its plan, but it has specified its unemployment and tax proposals. As it stands, no less than 90% of the stimulus package would consist of tax cuts, many of them permanent, while benefits to individuals would be meager.

As one of this year’s Nobel Prize winners, Joseph E. Stiglitz, has said, not only is Bush’s earlier tax cut not stimulating the economy, it is counterproductive. With its spiraling tax cuts, the administration removes the ability of Congress to stimulate the economy because it has no money to work with.

The Bush plan would make corporate tax cuts, chiefly accelerated depreciation, permanent. This makes no sense. If the depreciation change, which allows a quicker tax write-off of capital spending, is permanent, a corporation has no incentive to speed up investment to 2002 that would otherwise take place in 2003. Another proposal is to eliminate the corporate alternative minimum tax, which applies to companies that have such large deductions under regular tax law that they effectively owe nothing. This would encourage a proliferation of new tax shelters.

Finally, the White House wants to accelerate the tax rate reduction in higher brackets. But high-income taxpayers tend to invest such money rather than spend it. Once again, the Bush stimulus would not stimulate.

When it comes to workers, the Bush plan--touted just a week ago as a boon to workers--actually grows stingy. Consider unemployment. An extension of unemployment benefits is restricted to workers who lost their jobs after Sept. 11. Furthermore, apart from Virginia and New York, additional benefits are available to a state only if unemployment reaches 30% above where it was before Sept. 11. There is no new money for health insurance. Instead, $11 billion would be taken from the federal Children’s Health Insurance Program to cover unemployed workers.

Swift, modest aid to workers, not huge permanent tax benefits to corporations, is in order. Unemployment benefit restrictions should be eased. A payroll tax credit for individuals who did not qualify for the tax rebate would pump money quickly into the economy. And providing 50% federal coverage of insurance continuation for the unemployed, as Sens. Edward M. Kennedy (D-Mass.) and Max Baucus (D-Mont.) are proposing, would help those who have lost their jobs and can’t afford health insurance.

If Bush is really intent on bipartisanship, he should stare down the right guard among House Republicans.