More Stimulus Pre-Post-Mortem
Pro Publica has come up with a full list of the spending provisions of the stimulus bill, and a taxing matter has the rundown of the tax provisions.
The tax provisions, by their very existence, aren't great, but are certainly an improvement over the Senate bill. The home-buyer credit is scaled back to $8,000 and only for first-time buyers; and the car-buyer credit, while not limited to green or American-made vehicles, is down to a credit for state and local sales taxes on purchases in 2009. That's the good. Here's some of the bad:
But Max Baucus got through the conference agreement the much-lobbied-for cancellation of debt income provision. See this earlier ataxingmatter posting on the reasons forgiving the tax on debt forgiveness does not make sense as a stimulus. In brief, the only companies that will buy back their debt will be those with liquid assets and no need to borrow more, so they are not the companies the government should be underwriting through tax breaks during a recession that is making huge demands on government funding [...]
Another provision that makes no sense whatsoever--the exclusion of even more capital gain income for owners of stock. Section 1202 current excludes half the gain from small business stock held from issuance for more than 5 years. The temporary (2009-2011) "stimulus" provision will exclude 75% of that gain. That's an investor break that is poorly targeted to stimulate the economy (most owners of that stock will be among the more affluent) and it is one that will be very difficult not to make permanent when the economic shock is over, as has generally been the case with investor tax breaks.
And the Senate's AMT patch is still in there, making up about $70 billion (almost one-tenth) of the entire stimulus package. That's oxymoronic. The AMT patch is not a stimulus. It means less taxes and more money generally for the upper middle class. It is not well targeted to those in the lowest income distributions who will spent their tax savings in ways that serve as a stimulus to the economy.
Even financial institutions--one of the primary causes of our current economic meltdown due to their greedy speculation--got targeted tax breaks in the "stimulus" package. First, they will be permitted to deduct interest on debt used to purchase tax-exempt municipal bonds (i.e., they will get an interest deduction on money they borrowed to buy an investment that gives them a kind of income that is excluded). This tax break is limited (for now, anyway) to bonds issued in 2009-2010 and to the extent those investments are less than 2% of the average adjusted bases of all assets of the financial institutions. Second, another provision that excepts certain issuers from the interest disallowance provision is broadened by increasing the dollar threshold. The two provisions are expected to cost $3.2 billion over 10 years.
For this they nickel-and-dimed the refundable middle-class tax credit from $500/$1000 to $400/$800.
As for the spending, I'm sure the right will make a stink about increasing Inspector General budgets, although that's specifically to watch stimulus spending and will probably save taxpayers in the long run if they can stop waste, fraud and abuse. There are some great programs in here for the poor and the recently unemployed, as well as robust state and local government relief (albeit not as big as the house bill) which will come as a boost to those facing budget cuts, although how much of a boost is unclear. The major spending outside of that is in energy, education and health care. There's $13 billion for science and technology research. And there's $100 billion for transportation and infrastructure. In a surprise, the extension of the 1933 Buy America Act to cover the stimulus spending survived conference and will be reflected in the purchases, which I think is good. So is the keeping of comparative effectiveness research in the bill, which could drastically reduce health care costs on devices and treatments that don't work well.
Overall, the spending itself is fine, the tax provisions troubling but not deeply harmful. But the size is probably not sufficient. I can't find the link now, but Mark Zandi at Moody's is claiming that the bill will only create or save 2.5 million jobs and that we'll still be at double-digit unemployment in 2010. And Paul Krugman lays out the case that the package is insufficiently bold (although I think he's more concerned about the bank plan):
These aren’t normal times, so normal political standards don’t apply: Mr. Obama’s victory feels more than a bit like defeat. The stimulus bill looks helpful but inadequate, especially when combined with a disappointing plan for rescuing the banks. And the politics of the stimulus fight have made nonsense of Mr. Obama’s postpartisan dreams [...]
The ugliness of the political debate matters because it raises doubts about the Obama administration’s ability to come back for more if, as seems likely, the stimulus bill proves inadequate.
For while Mr. Obama got more or less what he asked for, he almost certainly didn’t ask for enough. We’re probably facing the worst slump since the Great Depression. The Congressional Budget Office, not usually given to hyperbole, predicts that over the next three years there will be a $2.9 trillion gap between what the economy could produce and what it will actually produce. And $800 billion, while it sounds like a lot of money, isn’t nearly enough to bridge that chasm.
Officially, the administration insists that the plan is adequate to the economy’s need. But few economists agree. And it’s widely believed that political considerations led to a plan that was weaker and contains more tax cuts than it should have — that Mr. Obama compromised in advance in the hope of gaining broad bipartisan support. We’ve just seen how well that worked.
Republicans are looking to run on the stimulus for the next five years, and will constantly be grousing about how it didn't work from the moment it's enacted. To the extent that it doesn't work, it will partially be a cause of the Axis of Centrism watering down the bill to blunt its effectiveness. House Democrats are pissed off by this dynamic and want the Senate to "make them filibuster." My question about that has always been "Then what?" Republicans are perfectly happy to ignore public opinion, and also I don't even think Senate rules allow for what House Democrats are wishing for. However, I do agree that pressure from the left must be significant and sustained if we are ever going to break the dynamic of catering legislation to two or three wayward centrists who don't have the same interests at heart. Politicians need to be pressured and pushed into doing just about anything.
... by the way, the final CBO scoring of the bill shows that 75% will get out in the first two years, exactly as Obama requested. And if they didn't cut down the fastest stimulus of them all, state fiscal stabilization funding, it would be even higher.