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Next stimulus plan should fuel growth

Rocky Mountain News

Published December 7, 2008 at 12:05 a.m.

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The new Congress and the Obama administration may be destined to commit hundreds of billions of dollars to a new stimulus package, perhaps as early as January.

Discussions the president-elect had last week with governors meeting in Washington suggest a major chunk of the funding might go to state governments that are also struggling to match declining revenues with higher demands for services.

But the goal of a stimulus package should be to, well, stimulate the economy - or at least stabilize rattled markets so that a recovery seems possible. It should not primarily be a way to balance state budgets. While state governments might deserve some relief from Congress, that help should largely be targeted at projects that could fuel a rebound.

For instance, a proposal floated earlier in the fall that would fast-track federal funding for state transportation projects that were either under way or ready to go may have merit - within limits. Highways, bridges and other infrastructure improve mobility and enhance long-term growth.

Completing those projects would not only keep construction workers and suppliers on the job; they would also upgrade the essential backbone of our mobile society.

The problem is that the states are angling not only for basic infrastructure but for a whole lot more as well. And the price tag? Astronomical.

In infrastructure alone, the National Governors Association said that $136 billion worth of state projects could be started within 90 days if the money were available. About two-thirds of them were transportation-related, while the remainder included school construction, renewable energy and water and sewage projects.

In addition to that figure, a number of governors and lawmakers are pushing for tens of billions more to help support programs such as Medicaid. The states can't just be given a blank check.

The danger here is that Congress may simply throw additional bundles of taxpayer money at the financial crisis - all of which amounts to long-term debt - without adopting policies that lead to a sturdy recovery.

A number of economists have suggested suspending capital gains or corporate income taxes for one year as a way to stimulate investment. We're skeptical, because this recession could outlast such a tax holiday. A better idea would be to permanently cut the corporate rate - say, from 35 percent to 25 percent, as Sen. John McCain proposed in the campaign - to give businesses the confidence to make long-term investments in the economy.

So far, however, Democrats seem intent on targeting tax relief to individuals and neglecting entrepreneurs. Reducing individual income or payroll taxes would certainly help struggling families, and may be a worthwhile piece of a larger stimulus package. But Congress should not ignore the essential role of private-sector job creation in any lasting recovery.

The challenge with any new spending or tax cuts is that either would increase the federal deficit, which by some accounts is on pace to exceed $1 trillion. Even a carefully crafted stimulus plan will only add to the government's red ink, which could fuel inflation, hinder long-term growth and saddle future generations with tougher fiscal burdens.

Policy-makers need to choose wisely, or the economic funk could linger for some time.

Comments

  • December 7, 2008

    11:13 a.m.

    Suggest removal

    BuffDriver writes:

    Another inane editorial...no wonder the RMN is up for sale. It appears that the lst stimulus package didn't do what it was supposed to. Most economists agree that such plans work only in the short term...if at all. However, tax cuts work every time. Of course, with Obama's grandiose ideas, tax relief is unlikely.