They’re back and ready to dole out hundreds of billions of dollars in new tax cuts and spending, but will it be enough to restart the limping economy?
Congress has returned from its holiday break, together with a freshman class of newly minted representatives and senators. While it’s missing a few members whose Senate seats are still a question mark, Congress will need to quickly tackle some pressing matters, particularly the size and makeup of the economic stimulus package. The overall package is estimated to approach a trillion dollars, and that means a whole lot of spending and red ink.
So much, in fact, that the Obama transition team has reportedly had trouble identifying enough “shovel ready” infrastructure projects to absorb all that much money and give a quick jolt to the economy. Then too, fiscal conservatives have been warning that they will be on the lookout for anything that resembles an earmark, as if any federally funded infrastructure project could escape that label. So now one of the preferred routes will be through tax cuts, though exactly what form those will take is going to be heavily lobbied and debated in the weeks and probably months ahead.
Any provisions for “pay-as-you-go,” or “paygo” for short, the offsets that are supposed to compensate for tax cuts with revenue-raising measures, are likely to be ignored at this point. The idea of raising taxes right now is anathema in Washington, even though states and municipalities across the country are being forced to raise taxes and fees in a desperate bid to balance their budgets, or come as close as they can to balancing them. Luckily for Washington, all the efforts to pass amendments requiring a balanced budget never went very far, so Congress and the Obama administration can spend freely, at least as long as inflation doesn’t go out of control.
In any case, as with the Wall Street bailout, Washington is determined to spend its way out of the recession, no matter how much money needs to be printed or otherwise injected into the financial system. Tax cuts are going to be one way to give people and companies more money to spend, at least theoretically.
Paradoxically, one effect of the financial crisis has been to encourage Americans to save more money rather than spend it on consumer goods. Unfortunately, the downside of the new thriftiness trend is that there is less money in circulation to grease the wheels of the consumer economy.
Economic recovery probably won’t happen quickly, but tax cuts are one strategy that both Congress and the incoming administration already know are popular. Lobbyists for various interests will be crowding the halls of Congress looking for their preferred tax breaks, but hopefully the tax cuts will be broad enough this time around to actually help the majority of the population.
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