As the Senate continues to ponder its supplement to the economic stimulus package expected to be enacted sometime soon, it is worth thinking about the reasons why an economic stimulus is needed. We've had seven years of a trend of budget deficits because of hundreds of billions in spending for a unilateral war in Iraq and because of a series of revenue reduction bills that gave the best off amongst us the biggest tax cut.
Our most reason tax bill was just more of the same--an AMT "patch" that cost the fisc tens of billions of dollars to provide "relief" mainly to those in the $200,000 to $500,000 bracket. The bill could have directed the "patch" just to those in the lower and lower middle class rather than to the upper crust of the middle class. It could also have paid for itself by correcting a monumental unfairness in the tax system--the treatment of the "2 and 20" mode of compensation for managers of hedge funds and equity partnerships and other partnerships, where managers get paid for their work mostly at capital gains rates and with deferral to boot because of offshore arrangements. But Congress passed the "patch" to the revenue collection without patching the revenue leakage from hedge and equity fund managers.
The stimulus package as designed in the House isn't much better. It does try to get some much needed funds into the hands of Americans in the lower income brackets, though it doesn't provide any funds for seniors who are living, many of them, on very meager social security allowances. It gives too much money to people who already have a good bit of money, since the House bill gives a refund of $1200 per couple (plus $300 per child) to families that earn as much as $150,000. The Senate Finance Committee bill considered no cap whatsoever, and then has thought better about that. But these funds won't really jumpstart the economy--they'll just add a little bit of spark to the flagging consumer end of the economy, to the extent that families don't just save or use the funds to pay off debt (probably the most likely use). That's why it is important for the Senate to include an extension of unemployment benefits. Even better, they should include public infrastructure project funding--for roads, bridges, schools--that can create jobs and build long-term assets in localities that need them.
The reason we need to do these things isn't because the stock market has been volatile, even with the Fed's infusion of liquidity by dropping the interest rate 1.25% within a very short period of time. The reason we need to do these things is not because we need to worry about CEOs and managers and big shareholders who hold a huge proportion of the assets (especially of the financial assets) of the country. We need to do these things because the ordinary person in the US is suffering. The January report from the Bureau of Labor Statistics tells the tale that we need to listen to--wages as adjusted for deflation actually declined by about 1% last year (between December 2006 and December 2007). So while the "economy" might have grown, its growth benefited only those at the very top (who have paid LESS in taxes because of the series of Bush tax cuts). It did not benefit the rest of us.
OMB Watch has a useful graph showing wage data over the period from 2001 through 2007, at this link. It shows a significant downward trend in wages. So if anyone wonders why average Americans are talking about the economy at the breakfast table and feeling worried about making ends meet, there is a good explanation.
Jobs data--ie, the number of new jobs created--is supposed to be released tomorrow. Economists are noting that they expect to see a number above 100,000, compared to the weakling number of 63,000 in the last report. Either way, we know we are not doing enough to create jobs and that the jobs of ordinary Americans don't pay enough. A stimulus package should take that into account, and include public infrastructure projects that can make a real difference, long and short term.