Over the last week, the news concerning the state of the U.S. economy continues to be troubling. Unemployment rates stand at the highest they have been in twenty-five years, banks continue to suffer problems despite the federal government’s willingness to give them aid, there is still doubt and uncertainty over the fate of America’s automakers, the federal deficit is expected to climb, and the gross domestic product (GDP) of the U.S. shrinking 3.8 percent in the fourth quarter, the biggest such contraction in GDP since 1982.
Faced with these massive economic problems, newly elected president Barack Obama has urged Congress to pass a new round of stimulus spending, over $800 billion worth, in attempt to get the economy growing again and avoid a second Great Depression in the United States. This is no surprise considering that the economic meltdown helped to elect Obama as president and if he fails to fix the economy over the next four years his chances of re-election look grim.
For extempers, the ongoing battle over this stimulus package is of utmost importance in examining domestic topics over the next two months. The success of the passage of this stimulus bill will demonstrate how well Obama can cross the aisle and win bipartisan support for his initiatives. This battle is also the first major legislative test of Obama’s presidency and a failure could cost his administration valuable momentum in its first several months in office.
This brief will clarify the components of the recent economic stimulus bill that passed the House of Representatives last week, describe what modifications the U.S. Senate may make to the bill, and the political implications that arise from these decisions.
House Passage of the Economic Stimulus Bill
In the first Congressional vote on a controversial Obama initiative, the results were less than pleasing for the new administration. Despite pledging to bring more bipartisanship to Washington, Obama saw all House Republicans vote against the economic stimulus plan. A handful of Democrats also joined their Republican colleagues in voting against the measure. While the 647 page measure, that includes $819 billion in new tax cuts and spending measures which is more than the Pentagon’s yearly budget, passed by a vote of 244-188, the partisan aspect of the vote demonstrates that bringing change to Washington will require more than mere words. What makes the partisan vote even more damaging for Obama is that he personally met with House Republicans in an attempt to win over some support for his plan, but the House Republican leadership was able to keep its members in line to oppose the package.
The Obama administration wanted the economic stimulus bill to include $544 billion in new federal spending and another $275 billion in tax cuts, proposals that the House bill accepted and modified according to member demands. The lengthy nature of the stimulus bill is because it spans a variety of everyday issues Americans are facing in the economic crisis such as employment, energy, and healthcare. However, the proposal has been criticized for confusing pork projects and other policy treats with items that would legitimately stimulate the economy.
The House bill wants to stimulate the economy by getting Americans to work with renewed infrastructure spending. States will be given funds to develop infrastructure projects for highways and schools. The House bill states that half of the highway infrastructure projects that money is allocated towards must begin within ninety days and the other half must begin within 180 days. This is placed into the bill in an attempt to get Americans to work faster and have the proposal immediately stimulate the economy. To provide further details, $30 billion of the bill is set aside for highway construction, $20 billion is to be used for school repairs, which includes plans to make them more eco-friendly, $3 billion for airports, and $2.5 billion for new commuter rail systems. Many other projects such as modernizing existing transit systems and aiding rail services have also been given billions of dollars in funding in the bill. Furthermore, the Army Core of Engineers is being given nearly $5 billion in funding to work on flood protection projects and to look into more hydropower for American cities. There is also additional funding given to make low income housing more environmentally sound.
The amount of jobs that this new infrastructure spending can deliver is open to debate. Congressional Republicans argued that the bill needs more infrastructure spending, because that will get Americans to work faster. The Congressional Budget Office (CBO) has estimated that the recent stimulus package could add 1.2 to 3.6 million new jobs, which also includes jobs whose loss could be prevented if the stimulus passes. The Obama administration has also released a forecast saying that if the stimulus package does not pass that the U.S. unemployment rate will reach 8.8 percent.
Aside from infrastructure, several rounds of tax cuts exist in the stimulus package. The stimulus bill passed by the House calls for a $500 tax credit to be given to single Americans and a $1,000 tax credit given to couples. However, this tax credit is not for everyone because once someone’s income level increases past $75,000 ($150,000 for couples) then their share of this tax credit begins to decline. For Americans who make over $100,000 a year ($200,000 for couples) they will receive nothing. This has caused some semblance of protest because the Obama/Biden ticket had pledged during the campaign that they wanted to look at increasing taxes on those making over $250,000 a year, but there is a $150,000 gap between that pledge and this bill in terms of who gets tax assistance. Controversially, the tax breaks that are being given in the stimulus package are also being directed at low income groups who currently pay no federal income tax.
The reason tax cuts look to be a viable option to fix the current state of the economy is that America’s gross domestic product is heavily dependent on consumer spending. In fact, 2/3rds of the American GDP is based on consumer spending alone. Therefore, getting Americans to start spending again is important in reversing the dire GDP numbers that were recently released. Economists, though, are disputing whether these tax cuts will actually stimulate economic growth. Economists are pointing to the fact that last year’s round of economic stimulus spending, which saw $96 billion of rebate checks distributed to Americans, did not significantly help the economy as a lot of Americans either saved the check or used it to pay off bills. According to these economists, Americans are not in a spending mood and no federal action will change that.
The more controversial parts of the House bill, which have received the most objection, come from efforts to protect American’s healthcare and small social engineering-type projects. In terms of healthcare, the stimulus will help 8.5 million Americans retain employer-based healthcare despite being laid off of work through COBRA based plans. These COBRA based plans allow individuals to retain their employer-based healthcare for up to 18 months after they have been laid off, but the major problem with these plans is that the premiums to retain the coverage are high, running into the $1,000 per month range. The current economic stimulus would have the federal government pay 65% of the cost of these premiums.
Also, the House bill gives states the option of putting unemployed workers on Medicaid, the federal healthcare program for the poor, and gives $87 billion in aid to states so that the Medicaid program does not have to experience cuts. State budgets have been strained by the economic crisis and the federal government is trying to cushion some of the blow with these funding for the Medicaid program so that states do not to try to cut it based on their current budget projections.
More controversial healthcare proposals in the stimulus package call for $20 billion in funding for new medical information technology, $1.1 billion to research how American healthcare can be improved, $335 million for sexually transmitted disease prevention programs, and millions for smoking cessation programs. Opponents argue that these are all good ideas, but their ability to stimulate the economy is questionable.
A final major focus area for the stimulus is in energy efficiency projects, with the goal of weaning America off of foreign oil, a pledge Obama made during the presidential campaign. According to the Los Angeles Times on February 1, 2009, the House bill calls for $7 billion in energy efficiency grants and $8 billion in reducing energy consumption for military and federal buildings. An additional $8 billion for new electrical lines so that new wind and solar energy can be transmitted is also in the bill. Supporters of the administration argue that these new green projects will create new jobs and will start the creation of a new sector in the U.S. economy which can power future economic growth.
The Senate Battle
Already, senators looking over the House bill have shown some reservations in voting for it. These concerns are not limited to Republicans, though. Nebraskan Democrat Ben Nelson has said that while he believes in the overall goal of the stimulus, he does not believe that programs to stop American’s from smoking will help to stimulate the economy. News pundits and Congressional observers have predicted that there might be a new bipartisan coalition who is tasked with making changes to the House bill and saving it from defeat in the Senate. Obama’s administration has said that it is open to Republican suggestions on the measure, perhaps learning from the House vote, but it has said that it expects to have a finalized measure on its desk by mid-February.
The Republicans have two major concerns with the stimulus bill. The first is that they want more money to be spent on infrastructure, which they believe will best create jobs, and they also want more money to be given in the form of tax cuts. Senate Minority Leader Mitch McConnell from Kentucky said that the current form of the stimulus “looks like a $1 trillion Christmas list” from the Democratic House and is currently unacceptable. To back their case, Republicans have pointed to statements made by CBO Director Douglas Elmendorf who has said that direct payments to individuals and cutting taxes would be the best step to stimulate the economy.
Democratic lawmakers worry that the current bill needs to have more housing assistance. The Obama administration is currently crafting a new housing assistance bill that will concurrently help with some of the credit crunch happening in U.S. banks, but such a proposal is not supposed to be finalized until the middle of February. However, some Democrats such as Charles Schumer of New York do not like the Republicans opposition to the House bill and are not favoring making the tax cuts in the current bill more expansive. Nevertheless, California Democrat Barbara Boxer is said to be working with Republican colleagues in reducing corporate taxes on overseas profits so there might be room to make more tax cuts part of the stimulus package.
The debate over the stimulus package begins on Monday and it will be very important for extempers to watch this debate develop. After the House vote, it is very important that Democrats craft a bipartisan initiative to show that ideology is not trumping what is immediately necessary to fix the economy. Also, it will be interesting to see how much deliberation occurs over the bill since some observers are worried that politicians are rushing to judgment on this stimulus bill as they did with the $700 billion bailout package last fall.
Implications
If passed, this stimulus bill has a wide range of implications, all of which will benefit or trouble the Obama administration for years to come. First, this new stimulus bill represents some of the most wide ranging federal action on any issue since the Great Depression. With the stimulus seeing federal involvement in job creation, healthcare, expansion of economic benefits, and the development of energy policy, it goes without saying that the perceptions towards big government action have shifted in a more positive direction than eight years ago. However, if this stimulus bill fails to achieve what it is supposed to, it would be a setback for big government types who believe that government can solve some of America’s most pressing social and economic problems. Conversely, if the stimulus package passes and is deemed a success then it has the ability to strengthen those big government types, a move which would most likely reflect positively on the Democratic Party for coming elections. This would also make Obama’s re-election in 2012 easier.
Second, the stimulus package has the potential to upset the balance of power in the Senate, threatening Senate Republicans. The Obama administration has recently revealed that New Hampshire Republican Judd Gregg is the frontrunner to be nominated as Commerce Secretary. This post was originally supposed to be filled by New Mexico Governor Bill Richardson, but he had to step aside because of a scandal brewing back in his home state. Obama aides believe that appointing Gregg to this post would help in passing the stimulus and other bills because of Gregg’s credentials as a fiscal conservative. They also believe it could steal some of the GOP’s momentum, which seems to be based on the belief that if they appear to be fiscally conservative they can win more votes in the 2010 midterms. However, if Gregg is appointed to be Commerce Secretary and confirmed, it would let New Hampshire’s Democratic governor appoint a Democrat to his seat, giving the Democrats their magic sixty seats to block Republican filibusters. Such a move scares Republican strategists to death as they would be rendered powerless. In fact, by the time extempers read this brief Gregg may have already been nominated, but it is an important story for them to follow.
A third implication of this stimulus is that is could provoke a trade war with Canada. Canada’s prime minister Stephen Harper has voiced opposition to the U.S. stimulus package and says that it is a form of protectionism. Harper’s complaints come from the text of the stimulus package that say that U.S. construction projects that are funded by the stimulus must use U.S. steel and iron products. Canada is a major trading partner in these materials and Harper says that the U.S.’s actions go back on agreements made at the G20 summit last year to not see a new advent of protectionism in global markets in response to the economic crisis. Vice-President Joe Biden has said that he does not see the U.S. steel and iron requirement as a form of protectionism because its goal is simply to create and maintain U.S. jobs, but this stimulus package could turn into an international fiasco, one that could end at the World Trade Organization (WTO), if Canada and the U.S. cannot reach a mutual understanding.
Finally, some political strategists say that Obama is attempting to use the federal coffers with this stimulus to craft a permanent majority for the Democratic Party. Former Clinton political strategists Dick Morris has recently stated that Obama’s plan to give tax handouts to lower brackets that do not pay much federal income tax, if any at all, is a ploy to buy votes in future elections and to build a permanent electoral group that has a majority and does not pay any taxes. Seasoned extempers might remember that Karl Rove attempted to have President Bush build a permanent majority for Republicans with the federal budget, which resulted in the 2004 Medicare prescription drug benefit, a handout to seniors in the hopes that they would vote Republican. Of course at that time Mr. Rove’s strategy was seen as genius and the Democrats were seen as being in danger of becoming a regional party…oh how times have changed.