A number of commentators have jumped on the forthcoming Bush economic stimulus plan - the New Republic gets it right when it notes that the dividend tax cut, even if it were being done right (it isn’t) doesn’t address the problem about stimulus:
Fixing capital market imperfections isn’t a trivial objective, but it has nothing to do with stimulating the economy.
This is the problem with Dubyanomics in general. It keeps on using slightly modified supply-side ideas about how to improve economic efficiency by “rectifying” taxes that give disincentive for growth. Leave aside for a minute the problem of whether the changes the administration wants would help long-term productivity or simply give a boost to the investing and land-owning classes without helping the general economy. Either way, the Bush economic team clearly is not interested in stimulating demand, only giving the appearance of offering a “stimulus package.”
The Democrats have made noises about a temporary payroll tax reduction. Something we could get behind (see our Position Paper on Tax Progressivity), except that two easier and more urgent stimulus measures are needed. First, we need a general, blank-check transfer of funds from the federal coffers to the states, almost all of whom are in fiscal crisis. States are either constitutionally unable to borrow money or have their hands tied by bond raters. The federal government can and should borrow money to maintain aggregate demand, and Congress should not be stingy by shouldering fiscal crisis off on the states, who are unable to deal with it.
Second, as a recent Washington Times op-ed points out, domestic security is woefully short. It will take more creativity and expertise than we’re currently providing - why can’t someone say in public that the emporer has no clothes and that a bumbling political appointee like Ridge is not who we need leasing us on the front of domestic safety? But more, it will take money, more money than we’re currently spending. That money will have to come from more borrowing and more taxes, but the president and Congress has yet to face the music.
These two issues seem to me to be connected, and if only the Dems could seize upon them, they might have the start of something.
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