If the economy slows down, there's a problem in the housing market, or politicians otherwise see a need to do something to get the economy moving, there's just one answer: spend more. The Wall Street Journal today discusses White House deliberations on the proposal anticipated from the president:
The president's main options include a tax rebate of perhaps $500 for individuals to encourage spending and a change in tax laws that would allow companies to deduct from their taxes a substantial portion of investments in equipment, according to people familiar with the discussions. President Bush is expected to prepare the economic-stimulus package before his State of the Union Address on Jan. 28.
The two measures at the top of the president's list would reprise his tactics during the economic slowdown faced during his early years in office. In 2001, while the economy was in recession, the Treasury sent checks of $300 or $600 to two-thirds of U.S. households during a 10-week period. The rebates represented advance payment on retroactive reductions in the lowest tax bracket, to 10% from 15%. In 2002, Congress, at Mr. Bush's urging, authorized companies to take deductions for 30% of the value of investments in equipment. The following year, Congress upped the so-called bonus depreciation to 50%, until it expired at the end of 2004.
What is the Democratic response?
House and Senate Democrats are working on a joint proposal to address the economic situation. "There's going to be things on the tax side and things on the spending side," said Sen. Charles Schumer (D., N.Y.), who is involved in the discussions. Sen. Schumer wouldn't elaborate as to what specific measures Democrats are considering, but he said if Mr. Bush "takes spending stimuli off the table, it's going to be hard to deal with him."
This sounds a lot like the liberal line taken by Congressional Democrats when Bill Clinton took office in 1993. Under pressure from Congressional leaders eager to spend, Clinton proposed a package that included $15 billion in pork. What did the New York Times have to say? That it wasn't enough:
The troublesome combination of slow growth and high unemployment presents Mr. Clinton with an opportunity. He can jack up Federal spending without fear of straining the economy or fueling inflation. The situation invites boldness; so far, Mr. Clinton offers timidity.
In the past, most stimulus packages have emphasized higher transfer payments, like unemployment compensation, and lower income taxes. The idea was to stimulate consumption. Mr. Clinton offers a better idea. He plans to boost investment by accelerating public projects that are ready to go but held up by state and local governments for lack of funds. And he proposes to cut taxes on private investment in new plant and equipment -- a powerful way to boost productivity...
A $50 billion package of accelerated public investment spending and targeted tax cuts would boost long-term growth and short-term jobs. It would be big enough to do some good, but not so large as to do any harm.
Eventually Clinton's stimulus package collapsed under its own weight. Too many liberals were disappointed that it didn't go far enough; too many conservatives said it went too far. And of course, the economic recovery was already well under way by the time Clinton came into office. No stimulus package was ever passed.
In the end, it looks like the U.S. didn't actually need all that new spending anyway. The U.S. created 22 million new jobs during Clinton's presidency.
Just as then, our economy will do just fine -- even without tens of billions of pork-barrel projects.