Juicing the Economy or Lining Corporate Pockets?

There is nothing that so starkly contrasts the differences between the Republicans and Democrats than their approach to the recession. All of the Democrats are proposing plans to put money in the hands of consumers to get them spending. They are also offering up economic stimulus packages to help those in need from homeowners, whose mortgage payments have skyrocketed, to extending unemployment benefits to those made jobless by the cascading mortgage loan and credit crises.

Meanwhile, the Republicans are seizing on the bad news as a way to extend Bush’s tax cuts to the wealthiest, including those who need it least.

And then corporations and their K Street lobbyists are clogging the offices of congressmen with their hands out to get their share of the goodies. For them, this is not so much a crisis in need of a solution as an opportunity to milk the government for every financial advantage they can get.

But don’t believe me, here’s what today’s Washington Post wrote about the two contrasting approaches:

The debate has highlighted the gulf separating the Democratic and Republican parties on economic policy, even as K Street stokes the engine on what House Ways and Means Committee Chairman Charles B. Rangel (D-N.Y.) fears could be a runaway train. Democrats from Capitol Hill to the campaign trail are ready to spend as much as $100 billion in the coming months on tax rebates, housing assistance, unemployment benefit extensions and aid to cash-strapped states to counter a recession that they worry may already have begun.

Most Republican presidential candidates are far more amenable to long-term changes in the tax code and spending that would address underlying drags on the economy rather than short-term, one-time fixes. And GOP leaders in Congress are concerned that Democrats would try to offset the cost of any stimulus package with future tax increases or loophole closures.

But the Republican approach is exactly wrong because what is needed is precisely a short term, temporary stimulus not an excuse to give those who need it least still more tax breaks while increasing the deficit further.

Here’s what Chairman of the Fed, Ben Bernanke, and former Treasury Secretary, Lawrence Summers recommended, in a CNN interview:

"To be useful, a fiscal stimulus package should be implemented quickly and structured so that its effects on aggregate spending are felt as much as possible within the next twelve months or so," Bernanke said.

Former Treasury Secretary Larry Summers told lawmakers on Tuesday that Congress should consider a stimulus package of up to $150 billion. He proposed an immediate injection of $50 billion to $75 billion through a combination of tax cuts and increased spending on unemployment benefits and other programs. He also advocated that another $50 billion to $75 billion be set aside in case economic conditions weaken further.

During Thursday's hearing, Bernanke said he thought a fiscal stimulus package of up to $150 billion, would be "reasonable.” Bernanke cautioned though that any stimulus "should be explicitly temporary" in order "to avoid unwanted stimulus beyond the near-term horizon and, importantly, to preclude an increase in the federal government's structural budget deficit."

(emphasis was mine)

Despite that disclaimer, you can always, always count on the corporate honchos and their handmaidens in greed, the K Street lobbyists to seek an opportunity in this country’s misfortunes. The Washington Post said this:

Meanwhile, lobbying groups for industries as varied as high technology and hotels are clogging the reception rooms and e-mail inboxes of senior lawmakers, pressuring them to include the groups' favorite benefits in a stimulus package. Small businesses are seeking to write off new equipment faster. Large businesses are appealing for lower tax rates. And home builders are pleading to offset their taxable income in years past with the losses they are suffering today.

Now some of these requests are not unreasonable and shouldn’t be dismissed out of hand. Letting small businesses expense their investments and write off new equipment faster and giving them some tax breaks to stimulate their investment in equipment, technology and growth is stimulative. It shouldn’t be dismissed out of hand.

That’s especially true since small businesses are responsible for most of the job creation in our economy. According to the U.S. Small Business Administration, businesses of less than 20 employees created 1.6 million new jobs in 2002-2003 (the latest year for which figures where available) By contrast, large corporations with 500 or more employees have been a drain on job creation, providing a net loss of 1 million jobs that same year.

So, anything that helps small companies stay afloat in tough economic times also benefits their employees and the overall economy.

But large businesses that want permanently lower tax rates contribute nothing to long term economic health or short term economic stimulation. Indeed many of these large firms have enjoyed record profits for years, given out obscenely large bonuses to CEOs, and never shared the good times with workers. As noted above, they've been a drain on employment growth. They neither need a hand out now nor do they deserve it.

The purpose of a stimulus package should be to put money in the hands of those who need the boost in buying power to get the economy moving. It shouldn’t be another bonanza for the wealthy and greedy. Unfortunately Republicans don’t get that. They never did understand real economic theory, which actually doesn’t begin and end with the totally unproven and failed theory of supply side economics.