United Liberty
Isn’t $1.2 Trillion Enough Stimulus?
Tue, 01/27/2009 - 7:51am | posted by Austin Wilkes
With all the talk of the inevitable “stimulus package” floating around, why is it that most commentators seem to leave out the fact that even without a “stimulus package” the nation is already on track to receive the largest Keynes inspired stimulus since 1945?
The Congressional Budget Office, during the first week of this year, announced that the fiscal year 2009 budget deficit was projected to exceed $1.2 trillion. This deficit does not include the upcoming stimulus spending and tax cut package being pushed for aggressively by the new Obama Administration. This projected forecast also uses questionable assumptions, particularly on the rate of tax revenue decline (6.6%) and the expected contraction of GDP (2.2%). Thus, with the economy deteriorating even faster and deeper than expected even a few weeks ago, the pre-stimulus package 2009 fiscal year budget deficit may even possibly reach or exceed $1.5 trillion.
Never since 1945, when the nation was resorting to billboards in order to raise war-financing, has the United States had a budget deficit greater than ~ 6% of GDP, yet even using very optimistic Congressional forecasts we are on track to reach 8.3% of GDP prior to the financing of a stimulus package which will certainly push Congressional estimates above 10% of GDP. Making less optimistic assumptions on economic output and tax revenue, combined with a stimulus package that comes in on the larger side, we could potentially see a budget deficit of up to 14% of GDP this year.
At its very foundation Keynesianism promotes deficit spending during economic valleys, whether through automatic stabilizers (unemployment insurance, tax writedowns, etc) or discretionary spending on public goods and services (infrastructure, research, etc). With the 2009 fiscal year deficit at 8-to-14% of GDP, it led me to think, if that is not a panacea of Keynesian stimulus ideals, then honestly I have no clue what is. Yet, for some it’s like it’s still not enough. Hell, for Paul Krugman, it’s never enough.
Note: The $1.5 trillion & 14% of GDP deficit claims are based upon what the writer believes is the worst case scenario that we can reasonably expect. The potential $1.5 trillion pre-stimulus budget deficit calculation was made using arbitrary assumptions of tax revenue falling at 13% instead of the CBO estimate of 6.6%. The second claim of a potential deficit of 14% of GDP was based upon a $1.5 trillion pre-stimulus budget deficit, a $900 billion (over 2 years) stimulus package, and an year-over-year decline in real GDP of 6%.
Details about President-elect Barack Obama’s stimulus plan have come out. He calls this economic stimulus plan the “American Recovery and Reinvestment Plan.” He says he is going to provide assistance for middle and low-income Americans, who are the ones who typically take out payday loans. He plans to do this in the form of tax cuts and he plans to invest in infrastructure such as bridges, roads and water mains. His economic stimulus plan has already received some negative responses even from his fellow Democrats. Recently, House Democrats today released their answer to Obama’s original stimulus plan, which he unveiled last week. Their plan costs $825 billion, a bit more than the $800 billion that was originally estimated. The new plan cuts out the tax credit for businesses that make new hires. The tax cut for individuals is included though, but it’s only a little bit extra in each paycheck, so a lot of Americans will probably still need a payday loan if they run into a financial emergency. Republicans, of course, are calling for more tax cuts, especially for businesses, and less spending. The Republican Study Committee released its own plan that reflects these ideals. The House is saying it hopes to have the bill finished by mid-February.
President Obama proposed different solutions on the Financial Crisis that we are experiencing today but it seems that the current economy has a lot of people looking for an online payday loan before it is too late. The tendency for companies to enact massive amounts of layouts seems to becoming quite the in style thing to do, as more companies have announced job cuts amounting to 45,000 jobs on Monday having been cut, creating more and more people that need a payday loan. The unemployment rate is continuing to rise, and it has hit levels higher than they have been since the Great Depression. Workers then couldn’t get a payday loan if they needed.
There lots of spending in our country, and it’s really hard to budget the money to be used for this stimulus package. But, which of these must be prioritized? There are a few piggyback riders on the economic stimulus bill. One for providing aid to childcare on military bases, and the other is a chunk of change that will enhance sex education in the U.S., these are the two parts of this stimulus. However, this may not be the best time for this kind of expense. These are good measures, but they deserve their own bill.
The trillion dollar stimulus package contains some of the spending that is not necessary and we’ve got to look at the package in terms costs and benefits. If creating a $40k-$50k a year job costs taxpayers $200-$300K, then this does not make sense and such programs are not necessary. We’d be better off transferring that money directly to struggling homeowners and giving further larger tax breaks for laid off workers and the middle class. I think we need to concentrate on further empowering the middle class, rather than spending taxpayers money on unnecessary spendings such as opening/renovating museums and constructing water parks.
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