Boosting the economy with good sense

Stimulus: Something must be done to reverse flagging numbers, but no one has the right idea yet.

November 05, 2001

AS NEWS about the economy goes from bad to worse, President Bush has challenged Congress to produce a stimulus bill this month. The problem is that the president and congressional leaders remain far from agreeing on a fair and sensible package, and many of the proposals on the table could do more harm than good.

After growing for more than eight years, the nation's economy shrank 0.4 percent in the third quarter. Most economists expect the next quarter to be worse. Unemployment is rising, and 1.1 million jobs have been lost in the last 14 months.

In September, consumer spending, which accounts for two-thirds of the nation's economic activity, plunged 1.8 percent, the largest decline in 14 years. Manufacturing declined for the 15th consecutive month. Personal income was flat. Construction spending fell 0.4 percent.

Economists quibble about whether all this means we're in a recession. But for the rest of us there's no doubt about what matters: The economy needs a boost.

The way to do that is with a balanced package of short-term spending hikes and tax cuts that help those hurt most by the recent downturn. We also need to boost consumer spending and provide incentives that spark investment in the coming months.

But Congress has yet to find the right formula. The House bill allows companies to write off equipment more quickly, which could promote investment, and extends tax rebates to some low-income citizens. But at more than $210 billion over three years, its price is too high. And too much of that goes for tax cuts that go mostly to the wealthy and large corporations. Many of these cuts would do little to encourage new investment.

Senate Republicans, with support from the president, have abandoned some of the most wasteful elements of the House plan. But their plan is still too expensive and heavily weighted toward tax cuts, which would total $220 billion over three years.

More than half the tax cuts for next year would go to the wealthiest 1 percent of taxpayers, who are the least likely to spend added income. The plan also does too little to help those recently laid off get extended unemployment benefits and health insurance.

And most of the tax cuts would come two to three years from now, when forecasts suggest the economy will be in recovery. Such cuts balloon future deficits but do little to stimulate the economy now.

With the prospect of a filibuster looming in the Senate, any successful bill will need support from both sides of the aisle. Instead of just demanding that Congress "get to work," the president needs to encourage his party to compromise, and help craft a more carefully targeted and balanced bill that merits bipartisan support.

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