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Stimulus: the worst of both worlds

The Democrats' false  premise is that all Americans are  construction workers.

The Democrats' false premise is that all Americans are construction workers.

The Democrats have some bad ideas for the stimulus bill. The Republicans also have some bad ideas.

Unfortunately, the compromise might be to combine the bad ideas of both parties.

The Democratic stimulus proposals are based upon a false premise and a deceit.

The false premise is that all Americans are construction workers.

The Democrats propose the federal government build new stuff for virtually everyone.

The Congressional Budget Office already has noted the constraints that exist on government’s ability to get hundreds of billions of dollars of construction money out the door quickly. But even that ignores the constraint from those who would need to do the work.

Residential construction is, of course, in a deep slump. Commercial construction not so much. And residential construction workers are not easily redeployed to do commercial and heavy construction. The skill sets are different.

The deceit is that all this spending requires suspending ordinary budget constraints to jump-start the economy. Most of the spending is actually in pursuit of long-term Democratic economic growth strategies.

Democrats believe that the economy will perform better long term with significant additional government investments in alternative energy sources, education, health care and social welfare programs.

Democrats won the election and have a right to try to advance their long-term strategies. But there is nothing about fighting the recession that justifies exempting these long-term strategies from the most basic of budget considerations: How are you going to pay for them?

Even without the stimulus package, the federal government already has reached post-World War II records for spending and the deficit as a percentage of gross domestic product.

The primary economic effect of the Democrat’s stimulus proposals will be to inflate private sector commercial construction costs and give the country an even worse fiscal headache.

The Republicans counter that our financial difficulties are rooted in housing and that’s where the fix needs to start.

Certainly, the bursting of the housing bubble was a proximate contributor to the economic downturn. But the heart of the problem was an overinvestment in housing, partially induced by government subsidies. That was compounded by imprudent lending to people without skin in the game in the form of a substantial down payment.

So, what do Republicans propose? New, more massive federal subsidies. Under the GOP proposal, the federal government would guarantee new mortgage rates of 4 percent. And don’t sweat that down payment. The federal government will give a tax credit of $15,000.

In the first place, existing mortgage rates already are historically low. Moreover, home sales are trending up, induced by deeply discounted prices.

The federal government could usefully reduce foreclosures by guaranteeing the refinancing of existing mortgages so that payments don’t exceed a certain percentage of income.

By massively subsidizing new home purchases, however, the GOP is basically proposing to reinflate the housing bubble.

Republicans also propose to reduce the income tax rates on the two lowest brackets. Rather than truly help low-income Americans, who don’t pay much in income taxes, the benefits will primarily flow to the upper middle class, while increasing the marginal tax rate increase faced by the middle class.

Truly providing income support to low-income Americans, who are most vulnerable in an economic downturn, would be something useful the federal government could do, through such things as temporary payroll tax relief and extended unemployment benefits.

The country would be fortunate if Congress would just enact those provisions and then call it a day.

Robert Robb, an Arizona Republic columnist, writes about public policy and politics in Arizona. E-mail: robert.robb@arizonarepublic.com

Citizen Online Archive, 2006-2009

This archive contains all the stories that appeared on the Tucson Citizen's website from mid-2006 to June 1, 2009.

In 2010, a power surge fried a server that contained all of videos linked to dozens of stories in this archive. Also, a server that contained all of the databases for dozens of stories was accidentally erased, so all of those links are broken as well. However, all of the text and photos that accompanied some stories have been preserved.

For all of the stories that were archived by the Tucson Citizen newspaper's library in a digital archive between 1993 and 2009, go to Morgue Part 2

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