A Stimulus Sequel

The American Jobs Act is a rehash of failed economic policies.

Yesterday, as scheduled, president Barack Obama submitted his latest plan, the American Jobs Act, to Congress. The president reiterated his contention that the bill contains a number of bipartisan proposals. Yet while that claim may have some merit, it was revealed that the bulk of the revenue necessary to fund this bill -- as in $400 billion of the proposed $447 billion in expenditures -- will come from a "limit on itemized deductions and certain exemptions on individuals who earn over $200,000 and families who earn over $250,000." Thus, the president has finally revealed that the idea of having "millionaires and billionaires" pay their fair share was little more than a euphemism for his ongoing class-warfare approach to economics. It is a euphemism aimed at obscuring a daunting reality: the administration has no new ideas to fix the economy.

Thus, we got more of a familiar refrain. "Do we keep tax loopholes for oil companies, or do we put teachers back to work?" Obama asked at the bill's Rose Garden unveiling. "Should we keep tax breaks for millionaires and billionaires -- or should we invest in education and technology and infrastructure, all the things that are going to help us out-innovate and out-educate and out-build other countries in the future?"

The question is rhetorical. Mr. Obama also proposed that $18 billion should be raised by taxing the earnings of investment fund managers as ordinary income instead capital gains. Since capital gains rates are lower, this is essentially another tax increase. Another $40 billion will come from eliminating oil and gas industry tax breaks (tax increase), and recalculating depreciation rates for corporate jet owners will ostensibly raise another $3 billion (tax increase).

What will the revenue be paying for? A total of $130 billion is aimed at state and local governments, broken down into $50 billion for transportation projects; $35 billion for the payrolls of school, police and fire department employees; $30 billion for modernizing public schools and community colleges; and $15 billion to refurbish vacant and foreclosed homes or businesses.

Yet the biggest chunk of expenditures will come from reducing the tax on Social Security and a tax cut for company payrolls. Last December, Congress lowered the tax rate for 2011 from 6.2 percent to 4.2 percent for individuals, while leaving it intact for employers on wages up to $106,800. The president proposes extending the cut for another year and enlarging the reduction to 3.1 percent. In addition, he proposes extending payroll tax cuts to the first $5 million of a company's payroll, which the White House contends covers 98 percent of companies whose total payrolls fall below that number. The cost of both proposals? $240 billion.

One of the most obvious flaws in the plan was revealed -- inadvertently -- by David Adkins, executive director of the Council of State Governments. "[With another infusion of revenue] the federal government may be able to play a critical role in helping states close their budget gaps," Adkins noted. Exactly. And it is exactly such "help" that makes it far easier for states to postpone making the difficult, and often politically unpopular, decisions necessary to get their own fiscal houses in order. Also, because such funding is temporary, programs or other initiatives partially or totally underwritten by the feds would either have to be cancelled, or the states would have come up with the difference in revenue when such funding ends. How does a state raise additional revenue?

Unlike the federal government, which can print money, states are left with the choice of either cutting spending, raising taxes, or a combination of the two.

This reality was revealed when the machinations of the original stimulus plan played themselves out. "States had this one-time money that helped them bridge a difficult period in state finances," said Todd Haggerty, policy associate at the National Conference of State Legislatures. "Now they have to face the absence of those funds and a whole new set of difficult issues." Mr. Haggerty made that statement in 2010. Yesterday, Democratic state Sen. John Arthur Smith of New Mexico reiterated that reality, noting that his state faced a $200 million budget gap in 2011 because it ran out of stimulus funding.

Some state governors, notably Republicans, have simply refused to take the funding in the first place. Wisconsin Gov. Scott Walker, Ohio Gov. John Kasich and Florida Gov. Rick Scott, have all rejected stimulus funding aimed at one the president's pet projects: high-speed rail lines. Furthermore, Scott and Texas Gov. Rick Perry have made it clear they may reject additional stimulus funding because it adds to the national debt. "President Obama's call for nearly a half-trillion dollars in more government stimulus when America has more than $14 trillion in debt is guided by his mistaken belief that we can spend our way to prosperity," Perry said.

Democratic governors disagreed. "It's a no-brainer: Congress should pass the bill. Now," said California Gov. Jerry Brown. "We need all the help we can get," said Vermont Gov. Peter Shumlin. "I think it's pretty much a nonpartisan idea that a modern economy requires modern investments in order to create jobs," said Maryland Gov. Martin O'Malley.

That political divide was reflected in Washington, D.C. While Republicans were reportedly willing to consider some aspects of the president's plan, it would appear that "modern investments," one of the more creative euphemisms for tax increases, are off the table. "It would be fair to say this tax increase on job creators is the kind of proposal both parties have opposed in the past. We remain eager to work together on ways to support job growth, but this proposal doesn't appear to have been offered in that bipartisan spirit," said House Speaker John Boehner's spokesman, Brendan Buck.

Boehner (R-OH) himself took a more nuanced approach, voicing his appreciation for the president's effort to get the bill to Congress quickly. But he noted that the House won't begin reviewing the various elements of the bill until its cost estimates are officially scored by the non-partisan Congressional Budget Office (CBO). "The record of the economic proposals enacted during the last Congress necessitates careful examination of the president's latest plan as well as consideration of alternative measures that may more effectively support private-sector job creation," Boehner said. "It is my hope that we will be able to work together to put in place the best ideas of both parties and help put Americans back to work."

House Majority Leader Eric Cantor, one of the president's chief critics during the debt ceiling negotiations, was displeased by the president's heavy-handedness. "It's pass my bill all or nothing," Cantor said of the president's approach. "That's just not the way things are done anywhere in Washington."

Yet Washington is where the other battle with respect to the nation's fiscal well-being will be playing itself out over the next couple of months. As part of the debt ceiling deal, a 12-member congressional panel must come up with $1.5 in savings by Thanksgiving. Given the partisan divide in Washington, such negotiations are already difficult. Yet during last Thursday's speech, Mr. Obama made them sound anything but. "Tonight, I’m asking you to increase that amount so that it covers the full cost of the American Jobs Act," he said, as if upping the target deficit reduction number by almost one-third will be relatively easy.

It won't be. Sen. Pat Toomey (R-PA), who is on the record saying it is "indefensible" that some American corporations pay no taxes, accused the president of playing "pass the buck." Panel member Sen. Rob Portman (R-OH) accused the president of "abdicating his responsibility." Committee co-chairman Rep. Jeb Hensarling (R-TX) was even more direct. "This proposal would make the already-arduous challenge of finding bipartisan agreement on deficit reduction nearly impossible, removing our options for deficit reduction for a plan that won't reduce the deficit by one penny," he warned.

Despite this reality, the president yesterday reiterated his position that the bill "won't add a dime to the deficit." If that has a familiar ring, it's because the president used the same phrase in reference to the healthcare bill in 2009. Excerpts from that same 2009 speech reveal other disturbing similarities to the president's current jobs initiative:

We passed a two-year Recovery Act that meant an immediate tax cut for 95 percent of Americans and for small businesses. It extended unemployment insurance and health coverage for those who lost their jobs in this recession, and provided emergency assistance to the states to prevent even deeper layoffs of police, firefighters, teachers and other essential personnel...we now are investing in projects to repair and upgrade roads, bridges, ports, and water systems--and in schools and clean energy initiatives...They have saved and helped create jobs and have begun to put the brakes on this devastating recession.

Again, that was two years ago. For the record, less than two months after the healthcare bill was passed, the CBO recalculated the costs from "not one thin dime" added to the deficit, to an additional $115 billion in spending over ten years. And that calculation is based on the improbable idea that most businesses will continue to underwrite healthcare costs for their employees instead of taking the far more profitable route of dumping them in government-run exchanges. That far more likely development would raise the price tag of the healthcare bill by as much as $800 billion annually.

In reviewing what has come before, and the subsequent lack of economic recovery that has occurred as a result, it is almost surreal to witness the ongoing ideological rigidness of a president who insists on giving the country more of the same Keynesian-inspired economic "solutions" to the nation's problems. Solutions that have been found conspicuously wanting. It is equally surreal, on the cusp of a double-dip recession, to see his enablers, most notably DNC head Debbie Wasserman Schultz, who contended that the "mantra that the Recovery [stimulus] Act did not work is such baloney," as determined as the president to ignore fiscal reality.

The state of the economy, as opposed to the rather dubious assertions of both the president and Ms. Wasserman Schultz, speaks for itself. It is an economy which necessitates the president's not-so-subtle strategy of painting Republicans as "obstructionists" if they don't pass his plan "right away!" as Mr. Obama has reminded us innumerable times. In keeping with the president's predilection for dividing Americans, the Democratic National Committee has broken down the impact of the American Jobs Act -- for women, Latinos, African-Americans and low-income Americans. Four constituencies he undoubtedly hopes will bolster his chances for re-election in 2012.

The only thing likely to boost the president's chances for re-election is a genuine recovery. How a smaller version of a previously ineffective stimulus plan gets us there is anyone's guess.