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Rethinking the Stimulus

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With shock and horror, stimulus opponents last week paraded around fragments of a government study showing that less than half the funds included in the now-passed House stimulus legislation would be spent by 2010. This was bad news. But then the Congressional Budget Office released the official (that is, the real) report, which reckoned that 64% of spending would occur before 2011 (85% by 2012). The House Minority Leader responded with vigorous, if seemingly misinformed, enthusiasm: the "so-called stimulus plan" will come "way too late to make any real difference in fixing the economy."

Instead, the House minority party proposed a treasure chest of tax cuts - some for individuals, including deductions for health insurance costs and relief from the alternative minimum tax, and some for businesses, including a carryback loss provision and small business income deductions. The only spending provision would continue the extended unemployment benefits program through the end of 2009.

Certainly, the opposition had succeeded in creating a fast-acting plan. But they seemed to ignore the arguably more important condition that the stimulus stimulate. Indeed, the pesky Congressional Budget Office that stimulus opponents have come to adore reports that the "multiplier" - the amount of economic activity wrung out of a dollar of additional spending or a dollar reduction in taxes - for tax cuts is the smallest of six stimulus policy options. And then there's conservative economist Martin Feldstein who calls the carryback loss provision "primarily lump-sum payments to selected companies." Others call this TARP II.

But this debate about fast-acting, ineffective stimulus versus slower-acting, effective stimulus obfuscates what the House legislation actually accomplishes (even if it raises important concerns about the persistence of the Bush ideology). Indeed, the American Recovery and Reinvestment Act ties together measures designed to assist struggling households immediately and investment that can help set the stage for an economy built on energy efficiency and durable infrastructure.

How easy it is to forget that extended unemployment insurance will keep 6.7 million people on benefits, that expanded COBRA and Medicaid insurance programs will keep 8.5 million individuals from losing health insurance, that more than 20 states are now considering cuts to health services, K-12 education, and public colleges. But how easy it is, too, to forget that the United States economy already needed much work before the financial collapse, that neglected infrastructure, inaction on climate change, and expensive health care were already straining an economy that, rotten inside, only appeared to be humming along.

There is a limit to what this stimulus package can and should attempt to accomplish. But we must be mindful that many of the measures included in the legislation make up - temporarily - for problems that have not been addressed in recent years. Modernization of unemployment insurance, health coverage for unemployed workers, infrastructure investment, and, indeed, investment in science and health technology should be the beginnings of a new policy regime that works to include more Americans in the middle class, not a passing reprieve in a time of economic gloom.

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