Tuesday, January 15, 2008

Will Democrats Bet on MUCH Bigger Government?

As Congress and the president are trying to figure out how to approach negotiations over an economic stimulus package, Rahm Emanuel is floating a trial balloon: a 'New Deal for the New Economy:'

Rep. Rahm Emanuel (D-Ill.) proposed today a far-reaching "New Deal for the New Economy" that includes a requirement that every American get another year of education after high school.

In a speech to the Commercial Club of Chicago, the Emanuel outlined a plan to expand health care, energy incentives, and savings as a way to respond to the economic pinch caused by globalization...

He said he supported universal health care but, short of that, he said Congress should build on recent efforts to expand health-care coverage. He put in a plug for an expansion of the State Children's Health Insurance program that President Bush vetoed. And he called for expanding the Medicare program so retirees from age 58 to 64 could qualify.

And he made a strong push for more government investment in energy that he said would create new markets and new jobs.

Emanuel said Americans must increase their savings, although many do not have the wherewithal. He supported universal savings accounts, which would supplement not replace Social Security. Employees and employers would each contribute 1 percent of paychecks into these accounts. The contributions would be tax deductible.

Emanuel is very influential within the House Democratic caucus. While his personality and ambition rub many the wrong way, his political instincts are widely respected. Plus, he gets a lot of credit for heading the DCCC in the cycle when Democrats took control of the House.

That said, it's clear that this proposal is not going to be enacted as a stimulus plan in the weeks ahead. It's unlikely to become the official Democratic position. Rather, Emanuel is setting a marker for the Democratic presidential campaign this year. He's clearly decided on a populist message, which offers new government programs for health care, education, and energy.

Interestingly, his plan includes a new tax-free, employer-matched retirement savings plan. While this sounds somewhat like the 'private accounts' favored by many Republicans as an option within Social Security, this one would be above and beyond the current Social Security system. Depending on how the program is structured, it could be superior to the private account--if for example, workers were allowed to save more, or had more flexibility to direct their investments.

It will be interesting to see which candidates--if any--latch on to Emanuel's plan. While it's likely to be costly, so are the current economic plans of the Democratic candidates. Plus, the plans for tax increases are already on the table.

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