More federal spending: New deal or raw deal?
Created on January 7, 2009
Tax Cuts for Investors, Not Massive Spending, Creates
After his swearing-in Jan. 20, the first order of business for
President Barack Obama and the new Congress will be to get the
economy back on track.
Already, Democratic and Republican congressional leaders are
assembling a bill to "stimulate" the economy by spending somewhere
between $700 billion and $1 trillion of the taxpayers' money. The
budget deficit could balloon from $1.2 trillion to $1.6 trillion or
This unprecedented action -- equivalent to as much as one-third
of last year's entire federal budget -- could do far more harm than
good if President Obama and Congress aren't careful, budget experts
at The Heritage Foundation warn.
And the New Deal isn't the model to follow. Despite the rosy
accounts of today's cheerleaders for government spending, President
Franklin D. Roosevelt's job-creation programs in the 1930s never
succeeded in pushing the unemployment rate under 20 percent -- much
less back to the neighborhood of 5 percent, the "normal" jobless
In their paper, Heritage experts J.D. Foster and William
Beach argue that the centerpiece of
an effective stimulus policy should include two elements:
- Extending the tax reductions of 2001 and 2003 for as long as
possible -- and through at least 2013 -- to prevent tax increases.
Better yet, make the tax reductions permanent.
- Reducing tax rates on individuals, small businesses and
corporations through 2013 by lowering the top rate by 10 percentage
points and reducing rates by similar amounts for lower-income
In a guide to
Heritage's prescribed "dos" and "don'ts" of economic stimulus
plans, economic research coordinator Nicola Moore writes: "The
ultimate test for distinguishing a good stimulus idea from a bad
one is this: Is the proposal likely to raise the economy to a
sustained, higher level of growth, or will it slow or stall the
Two of the big "don'ts" she lists are:
- Don't spend public money in hopes of driving growth. Economic
growth -- the act of producing more goods and services -- can be
accomplished only by making American workers more productive.
Productivity is driven by individuals and entrepreneurs operating
in free markets, not by Washington spending and regulations.
- Don't try to create jobs with frivolous spending on highway and
other transportation projects. Studies by the Congressional
Research Service, Government Accountability Office and
Congressional Budget Office conclude the positive effect of
transportation spending on jobs would be much less than anticipated
-- in fact, highway construction could have a negative effect on
McIntyre is the Marilyn and Fred Guardabassi Fellow in Media
and Public Policy Studies at The Heritage Foundation.