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Senate Changes Make Recovery Legislation Less Effective
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| Contributor | ArmyDem |
| Last Edited | ArmyDem Feb 13, 2009 10:33am |
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| Category | Analysis |
| News Date | Tuesday, February 10, 2009 04:00:00 PM UTC0:0 |
| Description | by James R. Horney and Chye-Ching Huang
The Senate today passed a version of the American Recovery and Reinvestment Act (H.R. 1) that makes a number of changes in the House-passed bill. Contrary to their proponents' claim, these changes — in Senate committees and on the floor last week, as well as by a group of Senators led by Ben Nelson and Susan Collins — have reduced the package’s effectiveness as economic stimulus. Though it costs modestly more than the House bill — $838 billion, compared to the House bill’s $819 billion — the Senate package would likely preserve or create tens (or possibly hundreds) of thousands fewer jobs.
The Senate has reduced spending, a fair amount of which was well-designed to stimulate the economy such as funding for state fiscal relief and school construction, and substituted new or expanded tax cuts that are not targeted and are unlikely to provide a substantial boost to the economy.
These changes fly in the face of the consensus of mainstream economists about how best to provide the boost in aggregate demand that is needed to help stem the current economic downturn and speed a recovery. Those economists conclude that:[1]
● Well-designed spending measures tend to be significantly more effective than tax cuts in stimulating aggregate demand because much of tax cuts are saved rather than spent; and
● Tax cuts are most effective as stimulus when they are targeted on low- and moderate-income households that will likely spend a high proportion of the benefits rather than on high-income taxpayers, who will likely save a large proportion of the tax benefits, or to businesses that are unlikely to spend the tax to expand capacity or hire workers when their sales are depressed. |
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